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Risk transfer (2) (Possible reasons for using ART
(DESCARTES)…
Risk transfer (2)
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Surplus vs risk XL
Where a risk event can only result in the payment of the full sum assured => no diiference between surplus and risk XL.
Example
Surplus: retention level of £100k, no upper limit
Risk 1: sum assured = £200k. Cedant pays 50%, reinsurer pays 50%
Claim 1: claim= £200k. This is split £100k cedant, £100k reinsurer
Risk XL: retention level of £100k, no upper limit