Calculate the expected reinsurance commission

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A quota share treaty sets out that a portfolio is allocated according to a 40:60 proportion between a direct insurer and the quota share reinsurer. Both the direct insurer and the reinsurer require a profit margin of 20%. €75 million total premium is raised by the direct insurer. The direct insurer has operating costs of 15% that relate to agency fees, claims management and marketing. Expected losses are €40 million. a) Calculate the expected reinsurance commission that should be returned to the direct insurer. b) If realised losses are 15% greater than expectations what is the likely reinsurance commission?

Reference no: EM132055997

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