ET Insurance Company cedes to MJ Insurance Company $60,000 of a $100,000 exposure on an excess of loss basis. A loss occurs for $60,000.

Question

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MJ Insurance Company is responsible for the portion of the loss that exceeds the retention limit up to the maximum limit of the reinsurance agreement. Since ET Insurance Company retains the first $40,000 of the exposure (the difference between the $100,000 exposure and the $60,000 ceded to MJ), and the loss is $60,000, MJ would cover the excess over ET's retention, which is $20,000 ($60,000 loss - $40,000 retained by ET). Therefore, ET pays the first $40,000, and MJ pays the remaining $20,000 of the loss.

ET Insurance Company Cedes to MJ Insurance Company $60,000 of a $100,000