THE INSTITUTE OF FINANCE MANAGEMENT
FACULTY OF INSURANCE AND BANKING (FIB)
DEPARTMENT OF INSURANCE
BACHELOR OF SCIENCE IN INSURANCE AND RISK MANAGEMENT
IRU_ 08614: REINSURANCE PRACTICES
INDIVIDUAL ASSIGNMENT SET ONE –TREATY REINSURANCE
ACADEMIC YEAR 2024/2025
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GENERAL INSTRUCTIONS:
1. Efforts pays. There is no tomorrow, do it now
2. All works should be handwritten.
3. Submit by 27th April, 2025
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REINSURANCE PRACTICE QUESTIONS
QUESTION ONE.
The insurer has a motor account and has arranged a working excess of loss treaty. He decides that
he only wants to retain TZS10, 000,000 on any one loss for his own account (his retention). The
maximum valued vehicle in the motor account is TZS50 million. The working excess of loss treaty
could be structured as follows:
Retention TZS10, 000,000
1st Layer TZS90, 000,000
2nd Layer TZS100, 000,000
3rd Layer TZS300, 000,000
How would the following losses be apportioned?
a. TZS42,000,000
b. TZS6,400,000
c. TZS3,000,000
d. TZS35,000,000
QUESTION TWO
As an insurer, you have a 6 line surplus treaty with a maximum retention of TZS200, 000,000.
You are asked to insure a risk, which you are not happy with and you decide to reduce your
retention to TZS100, 000,000.
a. How much will you pass to the reinsurer?
b. What will be your gross retention/acceptance?
QUESTION THREE
Another insurer has a 6-line treaty and a maximum retention of TZS200, 000,000. It is offered a
risk with a sum insured of TZS140,000,000. What is the minimum amount that it can reinsure
under its surplus treaty?
QUESTION FOUR
A cedant has an 80% quota share treaty applying to a risk of TZS500, 000,000. What is the
monetary value of its net retention?
QUESTION FIVE
An underwriter is asked to underwrite a plastic extrusion plant. The sums insured are:
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Fire TZS100,000,000
Loss of profits TZS150,000,000
She has a net line of TZS10, 000,000 and can take an additional 50% if the risk involves fire and
loss of profits. She has a nine line surplus treaty.
Calculate what the gross retention is and what facultative reinsurance she will have to place if any.
QUESTION SIX
Cell insurance company has a Quota share Treaty with Baobab Re (Reinsurance Company). The
treaty has a TZS 250 000 000 limit. A retention of 25% percentage and a cession of 75%. The
following three policies are issued at Cell Insurance Company and are subject to the pro-rata treaty
with Baobab Re.
i. Policy A insure building A for TZS25 000,000 for a premium of TZS400, 000 with one
loss of TZS 8,000,000.
ii. Policy B insurer Building B for TZS100,000,000 for a premium of TZS1,000,000 with one
loss of TZS10,000,000.
iii. Policy C insurers, Building C for TZS150,000,000 for a premium of TZS15,000,000 with
one loss of TZS60,000,000.
Required: Allocate the Risk, Premium, Losses under Quarter Share Treaty (per risk)
QUESTION SEVEN
JSM Insurance has a 10-line surplus treaty with a gross retention of TZS1, 000, 000 for its fire
portfolio with the total capacity of the fire treaty is TZS11, 000,000. It covers a commercial
building valued at TZS30, 000,000 under its fire and allied perils policy charging a premium TZS6,
750,000.
Given the limit of its fire surplus treaty, it manages to reinsurer the remaining portion of the risk
by facultative arrangement with 3 different reinsurers Tan Re-10%, Grand Re-30% and
PanAfrique Re- 23.4%.
The Building suffers a loss of TZS60, 000,000. The Risk, Premium and Loss will be shared
between JSM Insurance and the different reinsurers according to their proportions as per below.
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QUESTION EIGHT
A primary insurer has a surplus share treaty with a reinsurer and retains a line of $30,000. The
treaty contains 7 lines.
Policy A insures a building for $45,000 for a premium of $1,100, with one loss of $10,000.
Policy B insures a building for $200,000 for a premium of $2,250, with one loss of $1,200.
Policy C insures a building for $100,000 for a premium of $1,500, with one loss of $5,220.
(i) What is the maximum cession under the treaty?
(ii) If the primary insurer wants a policy covered under the treaty, what is the amount of
insurance offered?
(iii)Show the division of insurance/coverage, premiums, and losses for each policy given this
treaty
QUESTION NINE
A fire insurance company (reinsured) sets its maximum net retention at $2 000 000 for any one
risk. What in each case is the maximum gross line it can write with:
a) an 80% quota share treaty;
b) a nine line first surplus treaty and a five line second surplus treaty;
c) A 50% quota – share treaty with a four line surplus treaty on gross retention?
d) Assuming the company protects its net retention on the 80% quota share treaty referred to
in (a) above with a risk excess of loss treaty of $1 500 000 excess of $500 000. Show how
a loss of $450 000 will affect the reinsured, the quota share reinsurers and the risk excess
of loss reinsurers.
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