A property owner who wishes to insure a building with a value of NT $ 40 million approaches Promiseland.
Given Promiselandís limited capital, it could not accept and retain for its own account the full amount of NT$ 40 million.
It could only accept 1.25% of the sum insured (NT$ 0.5 million) and would therefore need to reinsure the remaining NT$ 39.5 million of liability.
Similarly, Trust Alliance (reinsurer) has to reinsure their liabilities in excess of their retentions.
Hence they would retrocede the excess amount to the retrocession.
Reinsurance can be broadly defined as insurance of insurance and retrocession as insurance of reinsurance.