Principles of Risk Management and Insurance 13th Edition by George Rejda,Michael McNamara

Exercise 1

Delta Insurance is a property insurer that entered into a surplus-share reinsurance treaty with Eversafe Re. Delta has a retention limit of $200,000 on any single building, and up to nine lines of insurance may be ceded to Eversafe Re. A building valued at $1,600,000 is insured with Delta. Shortly after the policy was issued, a severe windstorm caused a $800,000 loss to the building.
a. How much of the loss will Delta pay?
b. How much of the loss will Eversafe Re pay?
c. What is the maximum amount of insurance that Delta can write on a single building under the reinsurance agreement? Explain your answer.