Question

3.  Low Country Insurance wants protection from windstorm losses above $2,000,000.  They purchase a contract with Reliance Re such that Reliance Re agrees to the arrangement up to $10,000,000 in losses.

            a.  What type of contract is this? (1 point)

b.  Given windstorm damage of $7,000,000, how much does Low Country pay and how much does Reliance Re pay?

Answer 1

Answer :

Two scenarios for A) :

i) If reliance re is an insurance company and Low Country Insurance wants protection from windstorm losses from them, then the contract is a RE-INSURANCE CONTRACT.

REASON : Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself from the risk of a major claims event. With reinsurance, the company passes on some part of its own insurance liabilities to the other insurance company.

II) If reliance re is not an insurance company, then the contract is an INDEMNITY CONTRACT.

REASON : Indemnity is a contractual agreement between two parties. In this arrangement, one party agrees to pay for potential losses or damages caused by another party.

Two scenarios for B)

i) If it is an RE-INSURANCE contract then it will completely depend on the terms of agreement.

ii) If it is an Indemnity contract then windstorm damage of $7,000,000 will be borne by Reliance Re.