4.1.

An example to demonstrate the need for mixed treaties

Let us assume that an insurer wishes to fix its gross retention at CU 500,000
for good risks.
The insurer will only need surplus reinsurance for those sums insured which
exceed CU 500,000 in this category of risks. If we consider a risk with a value
of CU 2,000,000, the surplus would therefore bear three lines, i.e. CU
1,500,000 (75% of the risk).

If the gross line of CU 500,000 still exceeds the amount that the insurer wishes
to retain for its own account and it does not want a net retention of more than
CU 250,000, the solution would be to use the mixed system whereby it can
arrange a Quota Share reinsurance for its own gross retention, ceding 50% to
the reinsurer and retaining the remaining 50%.