Insurer X has retention under Surplus Treaty of USD 50 million PML and has 9 lines Surplus Treaty.

They bought a Risk XL of USD 45 million xs USD 5 million. In the Risk XL they also bought a PML Bust layer of USD 150 million xs USD 50 million.

Insurer X underwrote a chemical plant with Sum Insured of USD 1000 million. The risk engineer assessed the PML as 50%.

There was a major explosion and there was a total loss. Loss was USD 1000 million.
QUESTIONS (Interested readers can answer in the comments box).

1) How much loss is paid by Insurer X?
2) How much loss is paid by Surplus Treaty reinsurers?
3) How much loss is paid by Risk XL reinsurers under the layer USD 45 m xs USD 5 m?
4) How much loss is paid by RISK XL reinsurers under the PML bust layer?
5) Has insurer X bought adequate Risk XL PML bust layer?

If any of your answers in “It depends” – Please elaborate on what it depends?

Blog by Atmaram Cheruvu