Conditions on the Outward Cedent's Contract

Conditions on the Outward Cedent's Contract

The system handles recovery calculations according conditions on the Outward Cedent’s Contract. Conditions on sub sections of the OCC are also considered. Calculation rules are outlined under each condition.

For OCC’s being part of a Protection Program, it is a requirement that OCC’s linked to the same Protection Program Section have the same values for:

  • Limit Condition: Main Currency
  • Claim Condition: Claim Basis and Calculation Rule for Original Assumed Expenses

Below is a list of important fields and the implication on the recovery calculation.

Business tab: Accounting Info #

Trace Options:

Options for tracing booking details from inward to outward are available at Non Proportional Outward Cedent’s Contract level: The options are Source Business, Base Company and Responsible Partner.

Implications for Outward Recovery and Reinstatement calculation orders:

When selecting ‘Source Business’, the system creates a link between each outward booking detail and the insured period of the source business, and when selecting ‘Responsible Partner’ the system creates a link between the outward booking detail and the responsible partner of the source business (original responsible partner) and when selecting ‘Base Company’ the system creates a link between the outward booking detail and the base company of the source business (original base company).

A split according to the detailed level of tracing is allocated accordingly when running the recovery calculation. The split is allocated according to the first come - first serve principle.

Note! Recovery calculation does NOT consider the global system parameters; it checks the

Outward Cedent’t Contract to check if any trace is selected.

Limit Conditions #

Cover and Excess in the limit conditions of the Non-Proportional Outward Cedent’s Contract (OCC) must be defined.

Liability and underlying top limit of the propotional US Quota Share must be defined. Recovery Calculation for US Quota share calculates recovery as inward claims multiplied with the ceded % (which equals the Quota Share %). If the underlying top limit is above 0, retention will be calculated.

Refer to the Handle Business Conditions chapter, Maintain Non-Proportional Treaty Limits and Premiums section for more information.

The Recovery Calculation accumulates assumed claims through Headline loss and considers the total amount against the limits.

Per Event: If the OCC is a Per Event Protection, the limits are regarded as event limits.

Per Risk: If the Non-Proportional OCC is a Per Risk Protection, the system handles the risk losses differently, dependant of the claim being linked to a Headline Loss or not.

  • Headline Loss Link on Claim:each Risk is considered against the Cover and Excess amounts. A Risk Name on each of the Assumed Claims defines the Risk. If the Risk Name is missing, the assumed claim is still considered as a single Risk and thus considered against the Cover and Excess.
  • Include Claim Indicator activated on Claim:all inward claims having the same Risk Name are accumulated and the total amount is considered against the limits. Refer to the example ‘Recovery Calculation for Risk Claims’ section in the appendix.

For more information of how to establish a Risk Claim, refer to the Claims Handling chapter.

Risk/Event: If the Risk Protection has a Cover Per Event limit, each Risk is considered against the Cover and Excess of the OCC, and the Headline loss is considered against the Cover Per Event limit.

Refer to the examples the ‘Recovery Calculation for Risk Protection with Per Event Limit’ section in the appendix.

Limit Currency: If there is only one currency defined in the Limit Conditions, the system converts all assumed claims to this currency. However, if more limit currencies are added to the one in main currency, all assumed claims in those currencies are kept in their original currency.

For example, if main currency is USD and limits are also defined for GBP and CAD, the calculation is as follows:

  • Assumed claims booked in GBP create recoveries in GBP
  • Claims booked in CAD create recoveries in CAD
  • Claims booked in USD and in currencies other than CAD and GBP create recoveries in USD.

The recoveries are considered against limit in main currency using the fixed rate of exchange between the limit currencies. However, when converting assumed claims to a limit in a different currency, the paid claims are converted using the rate of exchange per transaction date (using each claim transactions As-Of-Date). The reserves are calculated using the current rate.

In addition to the covered amount, the Aggregate Deductible amount is calculated if this was defined in the Limit Conditions.

Limits at main and sub section level: The main rule is to create recoveries at the level where the limits are registered. Consequently, the calculation is done at child section level if limits are given. Target OCC section is decided by the accounting classification of each claim booking detail.

For calculation of recoveries in a Program section, the OCC section structure is often the same for all layers linked to the same program section. If the structure is varying within a program section, the following rules apply:

1st layer (OCC with the lowest excess) will decide the handling of recoveries.

  • If 1st layer has main section only, all layers will be calculated at main section level (disregarding any child sections higher up in the same program section).
  • If 1st layer has child sections; calculation will be done at child section level for all layers until a layer has only main section. This layer and all above is calculated at main section level (disregarding any child sections higher up in the same program section).

Recoveries will not be calculated at both main and child section level for the same OCC Insured Period.

Limit Type: If the cover amount defined on Main Section is type “Top Loss Probability” or “Top Sum Insured”, this is interpreted as a Combined Limit, and the recovery calculation deducts a single excess for a Headline, even though it impacts more than one section, and limits the total recovery for the Headline (across all sections) to the cover amount defined on Main Section. The maximum recovery per section is still the Cover amount defined on that section.

Aggregate Limit: Combined Aggregate Limit: The aggregate limit on the contract is the maximum recoverable for that section alone. If the Aggregate Limit is of type “Combined Aggregate Limit”, the amount is the maximum recoverable across all sections. The system applies cover, excess, aggregate limit, event limit, as per specific section under which the claim is recoverable, but ensures that the overall recoverable for all sections of the OCC does not exceed the Combined Aggregate Limit. If the claim exceeds this limit, the balance is booked towards Reinstatement Exhausted.

Franchise: If the protection has Franchise conditions, these are considered when running the Recovery Calculation Order. The Franchise Trigger Point is a threshold that each individual loss must break before the Non-Proportional Cover comes into force. The Franchise percentage gives the retained part of the amount between the excess point and the threshold amount. The Franchise calculation is not supported for US Quota Share.

Refer to the examples in the Recovery Calculation with Franchise Deductible section in the appendix.

Reinstatement Conditions #

The Reinstatement Conditions update the Aggregate Limit in the Limit Conditions showing the total amount of recoveries that can be made under the treaty. The system uses this information to monitor when the cover is exhausted. If Reinstatement Conditions are defined on several sections of an OCC, the system requires that the Calculation Rule is the same on all sections.

Claim Conditions #

Claim Basis: Select a Claim Basis to specify which losses should be covered under this Insured Period. Refer to field description Claim Basis in the Handle Business Conditions chapter for available selections.

Automatic Recovery calculation is performed for the following three selections:

Losses Occurring includes losses occurring during the Insured Period of the Outward Cedent’s Contract.

Claims Made includes losses reported during the Insured Period of the Outward Cedent’s Contract.

Refer to the examples in the ‘Recovery Calculation with Claim Basis “Claims Made” section in the appendix.

Risks Attaching includes losses suffered under assumed businesses written and renewed during the Insured Period of the Outward Cedent’s Contract. If the assumed business has amendments, the system uses the Effective Period the claim is attached to, in order to find which Insured Period of the Outward Cedent’s Contract, the claim is covered by.

If a Headline loss affects three different Insured Period’s of the OCC, the system creates three separate Outward Claims with link to the same Headline Loss.

If Claim Basis is Risks Attaching and the Interlocking Clause flag is activated (r_efer to field description Interlocking Clause in the Handle Business Conditions chapter for more information)_, the system creates one Outward Claim, even if the Headline Loss affects three different Insured Period’s of the OCC. The distribution of recovery is calculated according to each Insured Period’s share of the total from ground up loss, where Cover and Excess for each Insured Period are adjusted according to the percentage split per Insured Period. The interlocking calculation is not supported for US Quota Share.

Refer to the examples in the ‘Recovery Calculation for Risks Attaching Protection with Interlocking Clause’ section in the appendix.

Claim Sequence: A Claim sequence must be defined on each Outward Cedent’s Contract to indicate in which order the losses are recoverable. Refer to field description Claim Sequence in Handle Business Conditions chapter for available selections.

Date of Loss Order calculates recoveries according to the date of loss. The loss with the first date of loss is recovered first, and if any new loss with an earlier date of loss appears when the next recovery calculation is done, this loss appears first. If the Aggregate Limit is exhausted by this loss, this means that if a loss has been recoverable earlier it might be unrecoverable when doing the recovery calculation next time.

Refer to the examples in the Recovery Calculation with Date of Loss Sequence section in the appendix.

Date Of Settlement Order calculates recovery according to the date of settlement, that is, the losses are sorted according to the As Of Date of each claim adjustment independent from the date of loss. This means that losses that were recovered under the treaty, remain covered when doing the next recovery calculation.

Claim Advice Limit: Claim Advice Limit is defined to decide if outward claims should be created when they on incurred basis reach a predefined percentage/amount of the protection’s excess point.

Refer to field description Claim Advice Limit in Handle Business Conditions chapter for more information.

When calculating recovery, the system will include claims not yet affecting the protection, but which exceed Claim Advice Limit. If neither Claim Advice Limit on the Outward Cedent’s Contract (OCC) nor the System Parameter Claim Creation Limit is defined, all claims will be created on the OCC. The Claim Advice Limit is not relevant for US Quota Share.

Refer to the examples in the Recovery Calculation with Claim Advice Limit section in the appendix.

Reinstatement Exhausted Drop: The layer is dropping to underlying layer’s excess. When defined on receiving layer, the recovery calculation system considers all amounts derived from Reinstatement Exhausted on underlying layers as being recoverable under the layer, provided sufficient coverage is available. The amounts are not considered when calculating any Through Top. Refer to the example in the Recovery Calculation with Reinstatement Exhausted Drop in the appendix.

Increase FGU with OCC retention: The FGU amount upon which recovery is based is increased with an amount equivalent to the OCC excess point, thus ensuring full recovery from the first dollar.

Apply Inwards Claim Limits for Single Claims: The recovery calculation for single claims applies the inwards claim’s cover and excess as defined on the claim limits instead of the cover and excess defined on the OCC.

Risk Warranty: The layer is subject to a Risk Warranty Clause. All claims must be linked to a Headline Loss and have a Risk Name associated. Recovery is not calculated until at least defined number of different Risk Names are subject to the calculation. The Risk Warranty indicator is only available for Non-Proportional Treaty OCCs, which have a Per Event Type of Participation. The indicator must be set on the Main Section, and all child sections are subject to this. The clause cannot be overridden for the placements. Refer to the example in the appendix.

Original Assumed Expenses: The recovery calculation system calculates recoveries based upon extraction of assumed claim bookings. Paid Loss and Loss Adjustment Expenses are added together, creating Recovery Paid. Correspondingly, Loss Reserves and Loss Expense Reserves create Recovery Reserves.

If you select Original Assumed Expenses on the Claim Conditions of the Outward Cedent’s Contract (refer to field description Original Assumed Expenses in the Handle Business Conditions chapter), the system calculates outward expenses based on the booked assumed expenses. Furthermore, the calculated expenses are booked as a separate entry code on the outward claim ledger. The distribution of the expenses to the Outward Cedent’s Contract is according to the selected condition.

  • Part of Liability(default) means that loss adjustment expenses should be included as a part of the cover per loss and per aggregate limit.
  • Prorata In Addition means that loss adjustment expenses should be calculated in addition to the cover per loss and per aggregate limit in the prorata relationship as the reinsurance loss bears to the total loss.
  • Excluded means that loss adjustment expenses from assumed should not be included in the recovery calculations.

If the Original Assumed Expenses is not selected, the calculated recoveries contain the loss adjustment expenses from assumed as part of liability without booking the loss expenses separately on the outward claim ledger.

Index Clause #

If the section is subject to an index clause, the recovery calculation applies this to all included claims on that section.

The recovery calculation supports the following clause definitions:

  • Cover/Limits defined as “Cover Increase” (both Cover and Excess increases with the same index ratio.) Options “Cover decrease” and “Cover remains unchanged” are not supported.
  • All calculation methods are supported:
  • Standard(or full) index - claims are always indexed, there is no requirement to the current index value
  • Margin(or franchise) index - indexation only happens when current index exceeds the contractual base index + margin %
  • Severe inflation- similar to margin, indexation only happens when current index exceeds the contractual base index + severe inflation %

The index calculations for each of the above are as follows:

Standard: Index adjustment: Nominal adjustment * contractual base index/ current index point

Margin: If current index >= contractual base index * 1,x where x is the defined % - index adjusted adjustment: nominal adjustment * contractual base index /current index point

Severe inflation: If current index >= contractual base index *1,x where x is the defined % - index adjusted adjustment: nominal adjustment * (contractual base index *(contractual base index + SIC %) / current index

Payments and Both are the two choices supported under Payment/Reserves. When selecting the first one only paid recoveries will be calculated, whilst the second choice handles both paid and reserve recoveries.

  • Paid recoveries are calculated using index points valid at the due date of each inward detail
  • Reserves are calculated according to the selected Reserve Index Method:
  • Inward reserve latest as-of-date(default); which will use the latest inward reserve due date of current claim applied to the accumulated reserve
  • Booking year and period at recovery order; which will use booking year and period given in the recovery order applied to the accumulated reserve of each claim. This means that although no changes to the inward details; the reserve will be indexed using the end date of the selected booking year and period.

In the calculation, the system retrieves and applies index points valid at the due date of each of the contributing inward details. The system checks all rows (points linked to the same Base Index Date) of the selected index table. If the valid point is found in an index row later than the one specified on condition, the point value to be used in the calculation is derived by multiplying the retrieved point value with the conversion factor, or factors if there is more than one additional row involved.

Please refer to the appendix for calculation example.

Index calculation is not supported for US Quota Share.

For further details about the condition, refer to the chapter Handle Conditions.

Administration Condition #

On the Requirements tab of the Administration Condition, there is a check-box called Original Currency Recovery. Refer to Handle Administration Conditions section in the Handle Agreement Terms and Conditions chapter for more information about this condition.

The activation of this check-box has an impact when running the Recovery Calculation Order for Protection Program, for Single OCC and for XL Fac. When activated, the system will perform recovery calculations in original currencies. The Paid Recoveries are allocated to the original currency by using the exchange rate for the payment As of Date. While the Loss Recoveries are allocated to the original currency by using the most recent daily exchange rate stored in the system.

This functionality is triggered upon closing of worksheet from within the Recovery Calculation Order. Whenever a worksheet produced by an order is closed, the system reverses the recovery bookings made in the limit currency and creates recovery bookings in the original currency.

Refer to the example Recovery Calculation in Original Currency section in the Appendix.

Inuring to Benefit Rules #

The Inuring To Benefit Rules must be defined as a link to the Single OCC Section or Program Section where the uncovered claims should be considered for recovery next. Refer to the Handle Business Conditions chapter_, Handle Inuring to Benefit Conditions_ section for more information about this condition.

Inuring To Benefit Rules can be defined on both Outward Cedent’s Contracts linked to Protection Program and on Single Outward Cedent’s Contracts.

On the OCC Fac, special ITB Rules apply for Reinstatement Exhausted. The Reinstatement Exhausted Rule on Non-Prop Fac OCC allows recovering of claims starting from zero and not the excess point. Please refer to the Appendix chapter for an example.

Administration Conditions #

On the Administration Conditions - Accounts tab, you define the accounts and the details of the accounts applicable for the business. Accounts must be defined in order to be able to run the Retrocession Calculation Order for Non-Proportional.

Refer to the Handle Administration Conditions chapter, Define Accounts Conditions section for more information.

Deposit Conditions #

Premium and/or Loss Deposit calculation rules can be defined on the Deposit Condition.

Premium Deposit Conditions

You can select between different Premium Deposit Calculation Methods. Additional conditions, i.e. percentage and calculation basis are required for most of the methods.

For Non-Proportional OCC’s you can select between the following methods:

  • Percent of Premium
  • Percent of Premium Reserve
  • Percent Table
  • None Loss Deposit Conditions

You can select between different Loss Deposit Calculation Methods. Additional conditions, i.e. percentage and calculation basis are required for most of the methods.

For Non-Proportional OCC’s you can select between the following methods:

  • Percent of Loss Reserve
  • None

Refer to the Handle Deposit Conditions chapter for more information.

Reserve Conditions #

If Deposit Calculation Method is defined with ‘Pct of Premium Reserve’ and/or ‘Pct of Loss Reserve’, you will need to enter the Premium and/or Loss Reserve conditions, in order to have the system to calculate deposits automatically.

Refer to Handle Reserve Conditions for more information.

Conditions on XL CA Of Outward and XL Fac Retrocessionaire #

The XL CA Of Outward and XL Fac Retrocessionaires must have same conditions defined as Outward Cedent’s Contract, but there are some exceptions. Inuring to Benefit Rules are not relevant for these protections, and Original Assumed Expenses are not handled in the Recovery Calculation for XL Fac. For further details refer to Conditions on the Outward Cedent’s Contract section.