7. ABC insurance company has a quota share treaty with XYZ reinsurance company that was incepted on 1 January 2020 with a treaty coverage period of 12 months. 7.1 This treaty is accounted on a clean-cut basis using the eighth-basis method. The policies ceded to this treaty are as follows. Inception Date of Original Policy Premium payable of original risk to a reinsurer 14 May 500,000 2 September 280,000 8 November 120,000 Total 900,000 What would be the outgoing premium to this treaty on December 31, 2020? (6 marks) 3 7.2 This treaty uses a combination of a sliding scale commission and a flat-rate 10% profit commission. The sliding scale commission has the following commission terms: (6 marks) Provisional Commission 30% at 60% loss ratio Minimum commission 25% at 65% loss ratio Sliding 1:1 to 35% at 55% loss ratio Sliding 0.5:1 to a Maximum 45% at 35% loss ratio What is the reinsurance commission if the ceded loss ratio is 110% (i.e., the treaty suffers a loss)? (4 marks) Explain why XYZ reinsurance company pays reinsurance commission to ABC insurance company. (2 marks) 7.3 XYZ reinsurance company acknowledges that the risks ceded under this treaty are exposed to natural catastrophes. Discuss at least two different reinsurance strategies that XYZ reinsurance company can use to limit its exposures for the large loss related to this quota share treaty. (6 marks) 7. ABC insurance company has a quota share treaty with XYZ reinsurance company that was incepted on 1 January 2020 with a treaty coverage period of 12 months. 7.1 This treaty is accounted on a clean-cut basis using the eighth-basis method. The policies ceded to this treaty are as follows. Inception Date of Original Policy Premium payable of original risk to a reinsurer 14 May 500,000 2 September 280,000 8 November 120,000 Total 900,000 What would be the outgoing premium to this treaty on December 31, 2020? (6 marks) 3 7.2 This treaty uses a combination of a sliding scale commission and a flat-rate 10% profit commission. The sliding scale commission has the following commission terms: (6 marks) Provisional Commission 30% at 60% loss ratio Minimum commission 25% at 65% loss ratio Sliding 1:1 to 35% at 55% loss ratio Sliding 0.5:1 to a Maximum 45% at 35% loss ratio What is the reinsurance commission if the ceded loss ratio is 110% (i.e., the treaty suffers a loss)? (4 marks) Explain why XYZ reinsurance company pays reinsurance commission to ABC insurance company. (2 marks) 7.3 XYZ reinsurance company acknowledges that the risks ceded under this treaty are exposed to natural catastrophes. Discuss at least two different reinsurance strategies that XYZ reinsurance company can use to limit its exposures for the large loss related to this quota share treaty. (6 marks)