Insurer BCD has insured properties worth $125 million. It then announces that it has engaged in an excess of loss reinsurance contract with XYZ Re that covers losses on these properties with an attachment point of $50 million and a coverage limit of $30 million. In addition, BCD announces that it has engaged in an excess of loss reinsurance contract with LMN Re that also covers losses on these properties with an attachment point of $80 and a coverage limit $20 million. Suppose the properties suffer losses equal to $110 million. How much does each company have to pay?
Briefly describe why life insurers typically invest most of their assets in bonds.