Identify the five factors affecting the selection of reinsurance limits.
(1) Cost. High limits need high reinsurance premiums.
(2) Maximum policy limit. When the primary insurer deciding reinsurance limits, he should consider the amounts of insurances of policies that he is keeping. For instance, if most of the policies have insurance amount as $3m, the reinsurance limits are better decided no more than $3m.
(3) Extra-contractual obligations. If the primary insurer has extra-contractual obligations, the reinsurance limits are affected by whether the reinsurer should share the obligations. Generally, sharing obligations needs a higher reinsurance limit.
(4) Loss adjustment expenses. Whether to share and how many percentage of the loss adjustment expenses to share also affect the reinsurance limits.
(5) Clash cover. This placement is responding to claims from two or more policies arising from same loss occurrence. Clash cover is a reinsurance placement for liability insurances. It is more like the Cat. XL for property insurances.
(5) Cat. Exposure. When facing catastrophe event, the reinsurance limits usually decided by catastrophe modeling.