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Delta Insurance Company has a surplus-share treaty with Eversafe Reinsurance. Delta has a retention limit of $200,000, and nine lines of insurance are ceded to Eversafe. How much will Eversafe pay if a $1,600,000 building insured by Delta suffers an 40 precent loss? 1. A) $600,000 2. B) $700,000 3. C) $720,000 4. D) $800,000

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jepessoa

Answer:

Delta is responsible for insuring $200,000 / $1,600,000 = 1/8 of the building

Eversafe is responsible for 1 - 1/8 = 7/8

the loss = $1,600,000 x 40% = $640,000

Delta will pay 1/8 x $640,000 = $80,000

Eversafe will pay $640,000 - $80,000 = $560,000

in order for Eversafe to pay:

  • $600,000, the total loss = $685,714, or 42.86% of the building
  • $700,000, the total loss = $800,000, or 50% of the building
  • $720,000, the total loss = $822,857, or 51.43% of the building
  • $800,000, the total loss = $914,286, or 57.14% of the building