Annual Aggregate Deductible (AAD)

Annual Aggregate Deductible (AAD)

Another way for the cedent to obtain lower premium is to include an Annual Aggregate Deductible condition. The cedent must then retain a certain amount of losses otherwise recoverable. Contrary to the Franchise Deductible, the AAD is normally considered for the entire section as a whole, or in case of combined AAD, a number of sections, and not each loss separately. The exception is when the AAD is recorded as a Percentage of Loss. For further details of the AAD refer to record Non-Proportional Limits. The FGU Calculations will allocate losses towards the AAD depending on the Claim Settlement Sequence, and amounts will be booked on the generated worksheets.

Example

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Note! In the Date of Loss sequence, the loss with the earliest date of loss will have priority.

When the Claim Sequence is defined as Date of Settlement, the system will use the as-of date of each advisory when determining the allocation towards AAD. For payments each adjustment is considered separately, whereas for reserves the balance as per the latest as-of date is considered

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There are a few important rules to be aware of in respect of the Annual Aggregate Deductible Calculations:

  1. Any one loss can only affect the layer with the Cover Amount, regardless of the split between AAD and layer
  2. Payments are always considered prior to reserves according to the Claim Sequence. Each adjustment is considered separately.
  3. If the payments to the layer do not exhaust the AAD, the system will distribute amounts towards AAD Reserves using the balance per the latest as of date, according to the Claim Sequence.
  4. If neither payment to the layer nor the Original Loss Reserves exhaust the AAD, the system considers ACR amounts, and distributes towards ACR AAD, according to the Claim Sequence.
  5. If two or more losses occur on the same date when Claim Sequence is Date of Loss, the loss first booked will have priority.
  6. If two or more losses have the same as-of-date when Claim Sequence is Date of Settlement, the claim with the earliest date of loss will have priority. If the same claim have the same as-of date more than once, the as-of date with the earliest timestamp will have priority.
  7. Reallocation of the AAD must be done manually by creating a new FGU advisory for the claim that should be reallocated. FGU amounts can remain the same.