Exam DISC-RM Practice Question 255
Study guide: Exam DISC-RM
An insurer buys a $50 million industry loss warranty in reinsurance form. It pays the full limit if U.S. hurricane industry losses reach $30 billion and the insurer's own loss exceeds $1 million. A hurricane causes $26 billion of industry losses and $400 million of losses to the insurer. What does the warranty pay, and why?
- A) $50 million, because the insurer's own loss is far above $1 million
- B) $400 million, because the warranty indemnifies the insurer's actual loss
- C) $4 million, the share of the limit proportional to the industry loss
- D) Nothing, because the industry trigger was not reached
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