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in BUS 4027W - Actuarial Risk Management by

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?


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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.

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