Question

In which of the following methods does the percentage of retained sum insured vary for different limits of sums insured and reduce with increase in the limit of sum insured?

a.

Proportional Reinsurance

b.

Surplus Reinsurance

c.

Quota share reinsurance

d.

Variable quota share reinsurance

Posted under IC85 Reinsurance Management

Answer: (d).Variable quota share reinsurance Explanation:In variable quota share reinsurance, the percentage of retained sum insured varies for different limits of sums insured and reduces with an increase in the limit of sum insured. This means that for higher sums insured, the ceding insurer retains a lower percentage of the sum insured and cedes a higher percentage to the reinsurer. This method allows the ceding insurer to reduce its retention on larger risks while retaining a higher percentage on smaller risks. In proportional reinsurance, the reinsurer shares the liabilities of the insurer along with the sum assured, premiums, and claims in the same proportion as per the agreement in the treaty. The percentage of retained sum insured remains constant irrespective of the limit of sum insured. In surplus reinsurance, the original insurer (i.e. the ceding insurer) decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer.

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Q. In which of the following methods does the percentage of retained sum insured vary for different limits of sums insured and reduce with increase in the limit of sum insured?
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