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| No. of Points to Note for Promiseland's Capacity and Cessions The flexible of surplus treaties is a significant advantage for Promiseland. It does not pose a practical consideration, however, and that is the difference between the capacity offered by a treaty and the amount of risk which is not normally involved until the first surplus has been filled to capacity. Calculation of Trust Alliance�s share of the First Surplus Treaty The difference between capacity of an arrangement (how much risk could be managed) and the actuality of placement is illustrated in the below example: Risk 2: Veteran�s Hospital in Puli For Veteran�s Hospital risk, Promiseland could accept up to NT$ 16m. This would be apportioned as follows: NT$ Promiseland�s retention 2m First surplus (five times retention) 10m Second surplus (within twice retention) 4m 16m Trust Alliance will be liable for: 0.5% X $10m = $50,000 There is a common misconception: A treaty is split into sections or the number of lines that relates to the number of reinsurers involved. This is not true because for e.g. a five-line treaty is simply an agreement whereby the treaty accepts up to five times the retained amount on a risk. It is not split into five elements or units, some of which are used and some not. The treaty is a single �pool� of available capacity to which cessions are made of greater or lesser amounts as needed by the cedant. |
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| Reinsurance Program |
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| Promiseland's Capacity and Cessions Promiseland's retention % of risk Cession to % of risk to Cession to % of risk to Risk Sum Insured 1 line: $2m retained 1st surplus (5 lines) 1st surplus 2nd surplus 2nd surplus 1 $1.8m $1.8m 100% - - - - 2 $2.4m $2m 83.33% $0.4m 16.67% - - 3 $4m $2m 50% $2m 50% - - 4 $10m $2m 20% $4m 40% $4m 40% |
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