I need your professional advise very much as we are having big discussions regarding this question with my colleagues.
Quick description of the situation: how should the reinsurers' share in UPR be calculated on quota-share reinsurance treary under which Motor Hull insurance portfolio is ceded. The feature of the situation is that the ceding rates differ from original (underwriting) ones. Example:
Motor A with sum insured of 100,000 USD is insured with the rate of 9%. Insurance premium accrued by our client is 100,000 * 9% = 9,000 USD. Motor A is ceded to reinsurer (50% is self-retention, 50% is reinsurers' share). Reinsurer's premium is calculated as follows: 100,000 * 50% = 50,000 USD * 5.4% = 2,700 USD, where 5.4% - rate used for reinsurance purposes (instead of 9% on direct insurance).
My question is:
1. Are we right when we agree with the approach that under proportional quota-share reinsurance treaty reinsurers' share in UPR should be calculated on the basis of reinsurer's share in liability (in my example it's 50%)?
2. If so, should they use original rate (9%) or rate used for calculation of reinsurers' share in premium (5.4%)? And why??
I really hope for your help and advise.