Recovery Calculation when Reinstatement Exhausted Drop
The calculation of drop is available for both Treaty and Fac Non-Proportional OCCs.
| Protection Program | Cover | Excess | AAL | Reinst. Exh. Drop |
|---|---|---|---|---|
| OCC1 | 100,000 | 100,000 | 150,000 | No |
| OCC2 | 300,000 | 200,000 | 300,000 | Yes |
| OCC3 | 500,000 | 500,000 | 500,000 | Yes |
ITB rule for Reinstatement Exhausted has been defined on OCC1 - pointing to OCC2, and OCC2 pointing to OCC3.
The Claim Condition of OCC2 and OCC3 indicate that Reinstatement Exhausted should Drop
Inwards Claims Bookings
| Claim | Paid | Reserves | Incurred | Allocation |
|---|---|---|---|---|
| Claim A | 150,000 | 100,000 | 250,000 | 100% |
| Claim B | 400,000 | 100,000 | 500,000 | 100% |
| Claim C | 200,000 | 0 | 200,000 | 100% |
Assumption:
Claims are sorted and booked in sequence A, B, C.
| Claim | Entry Code | OCC 1 | OCC 2 | OCC 3 4 |
|---|---|---|---|---|
| Claim A | Paid ret. | 100,000 | 150,000 | 150,000 |
| Paid recovery | 50,000 | 0 | 0 | |
| Paid RE | 0 | 0 | 0 | |
| Paid TT | 0 | 0 | 0 | |
| Res. ret. | 0 | 50,000 | 100,000 | |
| Res. recovery | 0 | 0 | 100,000 | |
| Res. RE | 50,000 | 100,000 2 | 0 | |
| Res. TT | 50,000 | 0 | 0 | |
| Claim B | Paid ret. | 100,000 | 200,000 | 400,000 |
| Paid recovery | 100,000 | 200,000 | 0 | |
| Paid RE | 0 | 0 | 0 | |
| Paid TT | 200,000 | 0 | 0 | |
| Res. ret. | 0 | 100,000 | ||
| Res. recovery | 0 | 0 | 100,000 | |
| Res. RE | 0 | 100,000 3 | 0 | |
| Res. TT | 100,000 | 0 | ||
| Claim C | Paid ret. | 100,000 | 200,000 | 200,000 |
| Paid recovery | 0 | 100,000 1 | 0 | |
| Paid RE | 100,000 | 0 | 0 | |
| Paid TT | 0 | 0 | 0 | |
| Res. ret. | 0 | 0 | ||
| Res. recovery | 0 | 0 | 0 | |
| Res. RE | 0 | 0 | 0 | |
| Res. TT | 0 | 0 | 0 |
Explanations:
- The paid recovery of 100,000 for Claim C on OCC2 is the amount that would have been recoverable under OCC1, had the cover not been exhausted. Therefore OCC2 drops to the OCC1 excess, and recoveries up to the OCC2 limits can be calculated.
- The reserve RE for Claim A on OCC2 is the sum of the 50,000 which would have been recoverable under OCC1 except for the AAL (amount from RE), and the 50,000 which impacts OCC2 directly (net of excess). As OCC2 is exhausted on a paid basis by Claim B and Claim C, the amount is booked towards RE.
- The recovery reserve for Claim B on OCC2 is a pure “Through Top” reserve; directly impacting the layer. As the layer is exhausted on a paid basis by Claim B and Claim C, the amount is booked towards RE
- None of the claims impact OCC3 directly (Through Top), and all bookings are a result of underlying layers being exhausted.