Banner Insurance is a commercial property insurer that entered into a surplus-share reinsurance treaty with Anchor Re. Banner has a retention limit of $300,000 on any single building, and up to nine lines of insurance may be ceded to Anchor. An office building valued at $1,450,000 is insured with Banner. Several months after the policy was issued, a tornado caused a $650,000 loss to the building.
a. How much of the $650,000 loss will Anchor Re pay? Explain your answer and show your calculations.
b. What is the maximum amount of insurance the ceding insurer can write on any one building under the reinsurance agreement? Explain your answer and show your calculations.