Overview of Proportional Retrocession Accounting

Proportional Retrocession Accounting in SICS lets you do automatic calculation and booking of figures to be retroceded to an Outward Cedent’s Contract (OCC) and the Retrocessionaire’s Participation (ORP) of the OCC.

To be able to do Proportional Retrocession Accounting, an OCC protecting an Assumed Business (AB) must be created. The Insured Period From date of the AB must be included in the Insured Period of the OCC. One or more RPs must be defined on the OCC and the OCC’s Placement List must be complete.

The normal procedure in the Proportional Retrocession Accounting process:

1. Make Technical-/Claim bookings on an AB. (Refer to the OCC as original section below.) If the OCC is type US Quota Share, make sure that you have created a recovery order for the US Quota Share treaty before you continue with this process. (Refer to Non-Proportional Retrocession Accounting and Appendix 19 for further details.)
   NB! It is recommended to make the bookings on a protected business (e.g. Assumed Business) or on the OCC itself and NOT directly on the ORP as various calculations performed when running the Retrocession Calculation Order are based on the figures on the OCC ‘as Booking’ business ledger.

2. Enter the Administration Conditions of the OCC and select the next number of account in sequence to be processed.

3. Select Create Retrocession Calculation order from the menu.

4. Define the order and run it without closing the worksheets.

5. View the open worksheets created from the order.

6. Run the order again with the Close Worksheet option selected. (Refer to the OCC as booking and RP as booking sections below.)

7. Select the same account number again from the Administration Conditions of the OCC and select Create Retrocession Account order from the menu.

8. View the figures in account currency and close the worksheet by running the order again having the Close Worksheet option selected. (Refer to the ORP as account section below.)

9. Produce documents.

Refer to the applicable chapters for creating and running Retrocession Calculation orders and Retrocession Account orders for more detailed information about the orders. Also refer to the Produce Proportional Retrocession Accounting Documents chapter.

Retrocession Accounting Orders may also be run from the Periodic Functions option Retrocession Accounting Run Due Orders. Selecting this feature multiple orders may be selected and run. Orders may also be run from Job Scheduler. (Your system administrator manages Job scheduler.)

An overview of the Proportional Retrocession Accounting process

*) The OCC ‘as original’ business ledger reflects the AB business ledger multiplied with the Protection Assignment percentage. The signs are also reversed.

OCC ‘As original’:

When a Technical-/Claim Worksheet for an AB is closed, the details of the worksheet is automatically booked on the as original(preliminary) business ledger of the OCC protecting the AB. The AB booking details are multiplied with the Protection Assignment percentage defined on main-/ sub section level for the OCC. (Refer to Proportional Protection Assignment.) If the AB is protected by a proportional US Quota Share treaty the AB claim worksheets are not automatically booked on the OCC as preliminary bookings. You first need to create a recovery order to generate the preliminary claim bookings on the OCC. For further details, please refer to Non-Proportional Retrocession Accounting and Appendix 1 9.

When the OCC Claim Basis is ‘Losses Occurring’, the Insured Period of the source business' ( e.g. Assumed Business) booking detail made on Technical Worksheet is used to find the ratio to use in the calculation of retroceded figures (OCC ‘as Original’ business ledger). If the Insured Period affects more than one Effective Period of the OCC, the detail amount is proportionally split according to the number of days in Insured Period affecting the various Effective Periods of the OCC;

Source booking x PA% x ((OCC’s IP end date + 1 day - AB’s IP start date) / (AB’s IP end date + 1 day - AB’s IP start date))

The remaining part of the source business' booking detail is retroceded to the OCC’s next Insured Period (if renewed) or kept for own account.

For source business' (e.g. Assumed Business) booking detail made on Claim Worksheet, the Date of Loss determines whether the claim booking is to be retroceded or not. If the Date of Loss is within the Insured Period of the OCC, the claim booking is made on OCC ‘as Original’ business ledger. If the Date of Loss is not within the Insured Period of the OCC, but the OCC is renewed to the next Insured Period, the claim booking is made on the OCC ‘as Original for the next Insured Period. If the Date of Loss of the claim detail is not within any of the OCC’s Insured Periods, no Claim booking is made to the OCC ‘as Original’ business ledger.

When the proportional OCC Claim Basis is ‘Claim Advised Date’, the booking made on the Claim Worksheet of the source business (e.g. Assumed Business) is retroceded according to the Advised Date registered on the inward Claim (or Trigger Date/Date of Loss if no Advised Date exists). If the Claim Advised date is within the Insured Period of the OCC, the claim booking is made on the OCC ‘as Original’ business ledger. If the Claim Advised date is higher than the Insured Period of the OCC, but the OCC is renewed to the next Insured Period, the claim booking is made on the OCC ‘as Original for the next Insured Period. If the Claim Advised date of the claim detail is not within any of the OCC’s Insured Periods, no Claim booking is made to the OCC ‘as Original’ business ledger.

Booking made on Technical Worksheets are retroceded to the protecting OCC/Insured Period.

‘As Original’ bookings made due to adding new Protection Assignment

When adding the Protection Assignment for a source business (e.g. Assumed Business) with existing bookings, figures are automatically made to the OCC business ledger protecting the source business.

‘As Original’ bookings adjusted due to change of Protection Assignment

When the Protection Assignment on the source business’ section (e.g. Assumed Business) is changed (manually or when selecting the option ‘Generate Automatic Protection Assignment’) and bookings already exist on the OCC, adjustment figures reflecting the change in share are made to the OCC. Adjusted figures are those linked to the section being changed and to the sub sections when inherited from parent section.

OCC ‘As original’ bookings when protecting OCC is Net Quota Share (Cover Basis ‘Original Cost Participation):

If the Assumed Business is protected by a Proportional Net Quota Share OCC(Cover Basis ‘Original Cost Participation) entered as the last item in the Proportional Protection Assignment list, the 100% AB figures with reversed sign, are automatically booked on the Net Quota Share OCC preliminary business ledger. When the Retrocession Calculation Order(s) is(are) run for the remaining OCCs protecting the same AB, also the bookings made on these ORPs are automatically booked to the Net Quota Share OCC‘as Original’, but with reversed sign. The net figures booked on the Net Quota Share OCC represent the Retroceded Net share registered for this OCC.

When the system parameter ‘Retrocession based on Net Retroceded Share’ is active, all figures are multiplied with the Retroceded Net share defined for the Net Quota Share OCC, before being booked on the OCC ‘as Original’ business ledger.

If defined, also figures from the Retrocessionaire Participations of a Non-Proportional OCC are automatically booked to the Net Quota Share OCC ‘as Original’. Figures are reversed and multiplied with the Retroceded Net share before being booked to the business ledger. (Refer to chapter Individual Option, fields ‘Contribute to Net Quota Share OCC’ /’ Percentage’).

Entry Codes and Currencies

The Entry Codes and Currencies are the same on the OCC as original business ledger as on the AB business ledger. Bookings are made on Main Section of the OCC, unless your System Administration has allowed for automatic bookings on OCC to be made on Section level, and Automatically booked figures on section level is selected on the Business tab of the OCC.

Accounting Classification

Accounting Classifications from AB included in the OCC coverage, are defined as valid. Other Accounting Classifications are also transferred to the OCC, but defined as invalid.

Depending on the system parameter setting, all non mandatory classification items found on the inward accounting classifications may be disregarded or not when accounting classifications are automatically created on the outward business. (Refer to system parameter Accounting/Retrocession ‘Only Mandatory Items in Accounting Classifications').

Manual Bookings can be entered on a Technical Worksheet for the OCC and included in the OCC as original business ledger. (It is only allowed to perform manual bookings on valid Accounting Classifications.)

OCC ‘as booking’:

Running a Retrocession Calculation order, the as original bookings are transferred to the OCC as booking (temporary) business ledger. The booking details are transferred from as original business ledger to as booking business ledger according to the extraction criteria of The Retrocession Calculation Order.

The figures on the as original business ledger may be transferred to another Currency and/or transferred to another Entry Code before being booked to the OCC as booking business ledger. The Currency-/Entry Code transformation term conditions are defined in the Administration Conditions of the OCC Main Section or overridden on one or more OCC Sub Sections (refer to ch. Define Entry Code Transformation Term on Section Level).

In addition, the figures on the as original business ledger may be transformed from one Classification Type to another Classification Type before being booked to the OCC as booking business ledger. The Classification Transformations are defined in the Calculation Rules Condition of the OCC. Classifications can only be transformed to the OCC’ business own Classification Coverage. (Refer to Calculation Rules Conditions for more information of how to create the transformation). The Classifications Types included in the Accounting Classification are dependent on the definition for the Base Company/Main Class of Business/Reporting Unit in the system parameter Base Company Specific Settings/Classification Rules 2

Figures can also be transferred from the ‘as original’ business ledger of Contributing Businesses when such businesses are listed in the Closed Period Handling tab of the Administration Conditions of the OCC.

OCC ‘as booking’ when adjusted according to Quota Share Percentage When running the Retrocession Calculation Order, figures booked with an Insured Period being closed according to ‘Closed Period Handling’, may be adjusted by the Quota Share percentage defined for the current Insured Period compared to the Quota Share percentage defined for the previous (closed) Insured Period(s). This is possible by selecting the field ‘Calculate based on Quota Share Percentage’ on the OCC, Business tab, Accounting Info. When this option is selected, the booking details from previous Insured Period is multiplied with the Quota Share Percent registered for the corresponding Insured Period divided by the Quota Share Percent for the current Insured Period (refer to Premium/Limit Conditions, Limit ‘Quota Share Percent’).

Example;
OCC with Premium/Claim Accounting Basis = ‘Clean Cut’
Closed Period Handling = ‘Next Open Insured Period’
Quota Share Percent Insured Period 2018 = 25% and 2019 = 15%
OCC with flag ‘Calculate based on Quota Share Percentage’ = selected
Booking Currency equal to Original Currency

Following booking details are present on OCC ‘as original’ business ledger;

Running Retrocession Calculation Order - gives following details on OCC ‘as booking’;

Running Retrocession Calculation Order when adjusted by Quota Share Percentage gives following details on OCC ‘as booking’;

Calculated as follows;
Premium (-1.000 x 15/25) + (-10.000) = -10.600
Paid Loss (-2.000 x 15/25) + (5.000) = 6.200

No further calculation is performed with the figures booked on the OCC as booking business ledger, i.e. no business conditions are used in this step.

ORP ‘as booking’:

Running the Retrocession Calculation order, also the RP’s as booking(temporary) business ledger is updated. The figures booked on the OCC as booking business ledger is used as basis for calculation of the ORP’s share. Calculations according to conditions entered on the OCC and the special conditions entered on the ORP (if any) are performed. If amendments exist, the conditions defined for newest amendment is used. Only conditions entered on main section of the business are considered, unless your System Administration has allowed for conditions on Section level to be used by Retrocession Calculation Order, and Automatically booked figures on section level is selected on the Business tab of the OCC.

If an Entry Code transformation term is defined on the OCC Main Section or overridden on one or more OCC Sub Sections (refer to ch. Define Entry Code Transformation Term on Section Level), the corresponding calculation method must be defined on Main Section/Sub Sections to have the Entry Code transferred to/booked to the RP as booking business ledger.

Use conditions on section level when running Retrocession Calculation Order

As mentioned above, automatic bookings on OCC business ledger ‘As Original’ are normally done on Main Section only. When running the Retrocession Calculation Order, this only considers conditions on Main Section when calculating figures to be booked on the Retrocessionaires’ ledgers. However, it is possible to set up the system to make bookings on OCC business ledger ‘As Original’ on Section level. The Retrocession Calculation Order will then also be able to consider conditions on Section level.

To activate this functionality, the Accounting/Retrocession system parameter ‘Allow Booking/Use Conditions on OCC/RP Section Level’must be selected (see your System Administrator for more information). In addition the flag Automatically booked figures on section level on the Business tab of the OCC must be selected.

When this functionality is activated, the system will make bookings to the OCC business ledger ‘As Original’ on Section level. To find the correct OCC Section, the system will check the Accounting Classification of the source booking (e.g. the Assumed Business booking). The system will start checking the lowest Section level on the OCC. If the OCC has a Sub Section with an Accounting Classification matching the Classification on the Source booking, the booking will be made on this Section. If no match is found on any Sub Section level of the OCC, the booking will be made on the Main Section.

When you run the Retrocession Calculation Order, the Order will consider conditions and Entry Code Transformation Terms on the relevant Section when calculating figures to be booked on the Retrocessionaires’ ledgers. Bookings on the OCC and ORP ‘As Booking’ will be made on the same Section as the ‘As Original’ booking.

ORP ‘as account’:

Running the The Retrocession Account Order, the ORP as booking figures are converted to Account Currency according to the Currency Transformation Terms entered on the OCC and the exchange rate on the Retrocession Account order. Also the Entry Code Transformation Term defined on the OCC Main Section or OCC Sub Sections are considered. In addition to each ORP as Account business ledger being updated, the ORP’s Business Partner Ledger is updated.

Documents are produced from the Retrocession Account order, hence the figures in account currency are basis. Available documents to be produced are Statement of Account and Technical Account. If condition and account frequency apply also Profit Loss Account, Loss Participation Statement and Sliding Scale Commission Statement are available.

Proportional Fac OCC ‘as booking’ and OCC placements ‘as booking’/‘as account’:

When a Technical-/Claim Worksheet for a source business (e.g. Assumed Business) is closed, the details of the worksheet is automatically booked on the as booking business ledger of the Proportional FAC OCC protecting the source business and on the business ledger as booking/as account being placement of the Proportional Fac OCC.

The source business' booking details are multiplied with the Protection Assignment percentage defined on main-/sub section level for the OCC. (Refer to Proportional Protection Assignment.)

‘As Booking’/‘as Account’ bookings made due to adding new Protection Assignment

When adding the Protection Assignment for a source business (e.g. Assumed Business) with existing bookings, figures are automatically made to the OCC business ledger as booking protecting the source business. At the same time, the business ledger of the retrocessionaire participations as booking and as account are updated with the respective ORP shares.

‘As Booking’/‘as Account’ bookings adjusted due to change of Protection Assignment

When the Protection Assignment on the source business' section (e.g. Assumed Business) is changed (manually or when selecting the option ‘Generate Automatic Protection Assignment’) and bookings already exist on the OCC, adjustment figures reflecting the change in share are made to the OCC business ledger as booking protecting the source business. At the same time, the business ledger of the retrocessionaire participations as booking and as account are updated with the respective RP shares.

Adjusted figures are those linked to the section being changed and to the sub sections when inherited from parent section.

Entry Codes and Currencies

The Entry Codes and Currencies are the same on the OCC as booking business ledger as on the business ledger of the source business.

When an Entry Code Transformation Term is selected at the Proportional Fac OCC, entry codes will be automatically transformed when closing a worksheet at assumed business level. The transformation is from Original (assumed business) to As Booking only, As Account at retrocessionaire level will keep the same entry code as ‘As Booking’ disregarding any transformation terms defined.