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Reinsurance surplus retention limit

0 votes
asked Nov 1 in BUS 4027W - Actuarial Risk Management by anonymous

For reinsurance surplus, if the claim is lower than the retention limit, does the insurer still only pay (Retention Limit/EML)*claim or does the insurer pay the whole thing?

1 Answer

+1 vote
answered Nov 1 by Rowan (4,010 points)

The insurer will still only pay their portion of the claim, even if the claim is smaller than the retention limit. This is because the retention limit is only used to calculate the percentage retained (\(\frac{Ret Limit}{EML}\)) after which it is the percentage which matters, not the retention limit.