A primary insurer has a small portfolio of only two policies. Policy 1 has a face value of 80, and last year there were losses of 30 and 60. Policy 2 has a face value of 100, and last year there were losses of 30 and 90. All numbers are in thousand Dollars.
1. Determine for each loss, how much the primary insurer and how much the reinsurer would pay in case of an
A. Surplus Share Treaty with retention limit of 40 and one line is ceded to the reinsurer, or
B. Excess of Loss Treaty with a retention limit of 40 and reinsurance is offered up to a maximum of 80.
2. Explain what both reinsurance contracts have in common and what differentiates them from another.