United Insurance Company insures Travelco for fire insurance. United reinsures 40% of this exposure with Promises Reinsurance company on a pro-rata basis. If a $400,000 insured loss occurs at Travelco, Promises Reinsurance will pay United:

Question

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United Insurance Company insures Travelco for $400,000. United has reinsured 40% ($160,000) of the exposure with Promises. So, in case of a $400,000 insured loss, United will pay $240,000 and Promises Reinsurance will pay $160,000 (40% of the loss). Therefore, the total payout from United will be $240,000 + $160,000 = $400,000. Thus, the correct choice is C.

United Insurance Company Insures Travelco for Fire Insurance