Question 1

A treaty's adjusted premium formula produces a figure below the agreed minimum premium. What does the cedent actually pay?

Accepted Answer

The minimum premium — the floor always wins — The minimum is a hard floor. Whatever the rate formula produces, the cedent never pays less than the agreed minimum.

Question 2

Why is deposit premium paid in instalments during the year rather than as one lump sum at the end?

Accepted Answer

It gives the reinsurer cash flow through the year it is already on risk, rather than an unpaid balance for a full year — The reinsurer is on risk from day one of the treaty — deposit instalments mean it is also being paid from close to day one, rather than waiting a full year for a single settlement.

Deposit & Minimum Premium

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