Franchise Deductible

One way to obtain coverage for a reduced premium for the cedent, but at the same time ensure full coverage for big losses, is to include a Franchise Deductible condition. The Franchise works so that the cedent will retain a certain percentage of losses that would normally affect the layer (Franchise %) as an additional retention. However, when the loss exceeds the defined Trigger Amount, the cedent is ensured of full coverage, that is no additional retention. The Franchise calculation will be considered in the FGU distribution. The Franchise Deductible is considered for each claim separately, and is only considered for the Loss amounts. The amounts distributed towards Franchise Deductible will be displayed in the Suggested Distribution Display List, but will not be included in any generated worksheets. For further information about the Franchise deductible refer to Record Non-Proportional Limits.

Note that Franchise Deductible is only considered when it has been recorded as a Franchise percentage in combination with a Franchise Trigger point amount.

Example:

Limit250,000 xs 125,000
Franchise:Trigger Point 150,000
(Franchise Trigger) % 100%
FGU Loss 1:140,000
FGU Loss 2:175,000

Distribution
Loss 1:140,000 < Trigger Point 150,000
Franchise % = 100% - cedent retains 100% of the amount that affects the layer
Loss to layer: 0
Franchise: 15,000
Excess: 100,000
Loss 2:1 75,000 > Trigger Point 150,000

Franchise disregarded
Loss to layer: 175,000 less 25,000 = 50,000
Franchise: 0
Excess: 100,000

If the advised loss (Paid and Reserves) are below the Trigger Point, but the ACR Reserves takes the claim over the trigger point, the system distributes the claim to the layer.