Fictional reinsurance layer
A fictional contract exercise defines a reinsurance layer paying the portion of a covered insurer loss above 100 currency units, with a maximum layer payment of 300. A covered loss of 500 occurs. The original insurer remains responsible to its policyholder under the primary policy, and there are no reinstatements, aggregation changes or other recoveries in this model. A learner assumes the reinsurer must pay 400 because that is the amount above attachment. Another assumes arranging reinsurance removes the original insurer’s policyholder obligation. Students must apply the supplied layer and explain which exposures remain. This is a numerical illustration rather than an actual treaty interpretation, legal advice or statement of mandatory national reinsurance terms.
1. What recovery and retention follow?
Read the worked answer
Loss above attachment is 400, but the layer limit is 300. Reinsurer payment is 300 and the original insurer retains 200 under the supplied model.
2. What should be considered beyond the arithmetic?
Read the worked answer
The exact treaty wording, collectibility, timing and counterparty risk matter. The original insurer’s primary obligation is not automatically discharged by this separate recovery arrangement.