Calculation of Loss - Suggested Distribution

Calculation of Loss - Suggested Distribution

Based upon the Advisory Figures and inuring recovery (described later in this chapter), the system will suggest a distribution of the claim figures to the linked sections. The system will determine the “boundaries” for each linked section, that is the cover amount and excess point, and also determine whether the claim figures should be recalculated. Finally conditions like cost clause, interest clause, franchise deductible, and annual aggregate deductible will impact how the FGU Advisory Figures are distributed.

Determination of Limits #

The following items impact the calculation of limits:

Claim Limits, alternatively Business Limits and Cover Basis

  • If a claim limit is recorded this will be applied in the further calculations. The Business Limits will be ignored.

  • If no claim limit exists, the Business Limit will be applied in further calculations.

  • If the Non-Proportional Business Limit has Cover Basis “Net After Proportional Protections” the system will gross up all amount limits with the cover basis percentage. The recalculated limits will be applied in the further FGU Calculations. Index calculation

  • If Claim is automatically indexed, the system will perform the index calculation, and apply the calculated index ratio to the Limit and Excess used in calculations. The new indexed cover and excess will be applied in further calculations. Co-insurance applied to Claim Figures and Covers

  • If co-insurance is applied to Claim Figures and Covers the system will multiply the limits with the Co-insurance percentage. These limits will be applied in further calculations. Reduction applied to Covers, Covers and Claim Figures, and Deductible

  • If reduction is applied to Covers, Covers and Claim Figures, or Deductible the system will multiply the relevant limits with (1 - reduction percentage). These limits will be applied in further calculations.

Recalculation of Advisory Figures #

After having determined the limits, the system considers whether FGU Advisory Figures also must be recalculated. The following items will be considered:

  • If Inuring Recovery has been recorded the system first deducts the inuring amounts from the FGU claim amounts. The new loss figures will be considered in the further calculations.
  • If a Policy deductible has been recorded the system will deduct this from the claim amounts. The new loss figures will be considered in the further calculations.
  • If Co-insurance is applied to Claim Figures or Claim Figures and Covers, the system will multiply each of the advisory figures with the co-insurance percentage. The new claim figures will be applied in further calculations.
  • If Reduction is applied to Covers and Claim Figures, or Claim Figures the system will multiply the claim figures with (1 - reduction percentage). The new claim figures will be applied in the further calculations.
  • If System parameter Keep own Incurred Estimate is checked, the system will copy any existing Own Incurred Estimate from the most recent as-of-date, for all currencies. The advisory also copies current position for paid and reserve for all currencies. Further ACR will be re-calculated based on the difference of New incurred to the Own incurred estimate.

Distribution #

The system now has the cover and excess amounts that will be applied, and the recalculated FGU figures. To determine the final distribution the system considers the following:

  • If Cost clause has been defined as Part of Liability or None, the system must calculate the loss/expense ratio. A proportional part of the excess will be deducted from the expense amounts. (The remaining part will be deducted from the Loss amounts.) For expenses and loss, no more than the recalculated cover is recoverable.
  • If Franchise Deductible has been recorded, the system must compare the incurred loss amount, including any expenses part of liability or none, with the defined Trigger Point. If the Incurred amount is less than the Trigger Point, the allocation to the section will be reduced with the Franchise Percentage.
  • If an Annual Aggregate Deductible has been recorded, the system must first ensure that this is exhausted, prior to allocating amounts to layer. Note that costs and interests will not be allocated either, if the claim is retained within the annual aggregate deductible.

Each of these considerations and calculations will be described in detail below.

Note! The suggested distribution is not editable.