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Old 12-21-2018, 05:18 AM
panning2002 panning2002 is offline
Join Date: Oct 2013
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Default question about sum insured

I am a bit confused with the definition of sum insured. Basically,

1. is it the same as the policy limit? If a policy covers a variety of risks, each with a separate coverage limit, will the sum insured be the highest of the coverage limits or the sum of each coverage limit?

2. For a proportional reinsurance treaty, how is the treaty sum insured calculated? Sum of the sum insured of each underlying policy?

Many thanks
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Old 12-21-2018, 11:08 AM
Beach Bum Beach Bum is offline
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I see /use it synonymous with total insured values (TIV). If you insure a building with $10M in building value, $1M in contents, $1M in business interruption, you'd have $13M in TIV.

Sum insured would take this exposure value and apply it against all locations in your portfolio.

If using it for GL purposes it can be a bit misleading. Say you write a bunch of $1M per occurrence GL limits, one could simply take # of policies times $1M to get sum insured (or total exposures). However, this doesn't differentiate between writing a bunch of small accounts or a bunch of large commercial accounts. The example above with property does actually tell you the in-force exposure.
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Old 12-21-2018, 11:39 AM
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DeepPurple DeepPurple is offline
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1) No it is not. TIV means all the exposure added up, at least on paper. TIV is not the policy limit. A loss may exceed a policy limit. Homeowners is a good example. A house is insured at a policy limit of $200,000. The policy also gives coverage for appurtenant structures of 10% (20,000) contents of 80% (160,000) and additional living expenses (10%) for a TIV of $400,000. So seeing a total loss at 200% of policy face value is a possibility.

2) The question doesn't really make sense. TIV is not a relevant to proportional treaty transactions. But you can calculate TIV by just summing all the policy limits.

The vast majority of proportional treaties are quota shares. Sums insured is not relevant to any calculation. The reinsurer gets a contractual portion of the premium and pays the same percentage of a losses. Say it is a 50% quota share. The reinsurer gets 50% of the premiums, and pays 50% of the losses, without regard to TIV. A policy could be 20 thousand or 20 million. Reinsurer gets half and half.

Surplus share proportional reinsurance (technically still a thing but pretty uncommon) has the proportion of sharing for each individual policy defined by the policy limit of that policy. Then the premiums and losses for each individual policy is shared proportionally as stated in the treaty. Do you need further examples?
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