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Bluth Insurance Company writes a property insurance contract on a skyscraper in California
Bluth Insurance Company writes a property insurance contract on a skyscraper in California. The policy has a $50 million limit. Bluth wants to cede some of this risk in a facultative reinsurance contract with Austero Re. They are considering their options.
1. One option is an excess-of-loss contract with a $10 million retention limit. If they went with this option and there was a fire in the skyscraper which caused $20 million of damage, how much would Austero Re pay?
2. Another option is a surplus-share contract with a $10 million retention limit. If they went with this option and there was a fire in the skyscraper which caused $20 million of damage, how much would Austero Re pay?
Expert Solution
There are two options:-
1. In case of an excess of loss contract with a $10 million retaintion limit. If they went with this option then damage caused by fire in the skycraper which caused $20 million, so Aestro does not pay anything beacuse the policy has a $50 million limit.
2.in case of a surplus-share contract with $10 Million retaintion limit. If they went with this option then damage caused by fire in the skycraper which caused $20 million, so Aestro repay ratain $10 million so he repays the remaining $10 million.
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