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A large oil company requests ¢200 million of liability insurance to cover its oil business. State Insurance Company (SIC) has a reinsurance contract with Ghana Re that enables the coverage to be written immediately. Under the terms of the contract, SIC pays 30 percent of the losses and retains 30 percent of the premium. Ghana Re pays 70 percent of the losses and receives 70 percent of the premium, less a ceding commission that is paid to SIC. Answer the following questions:
a. What type of reinsurance contract best describes the arrangement between the two insurance companies? Explain your answer.
b. Supposing a ¢100 million covered loss occurs, how much will each insurance company have to pay? Explain your answer.

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