Study 5 - Excess of Loss Treaty Agreements

Question 1

Difference in the scope/basis of cover between proportional and non-proportional (excess of loss) treaties?

Answer 1

• With proportional, the scope of cover is based on the transfer of policy exposure, a transfer carried out by sharing portions of the insurance company’s liabilities
• In non-proportional treaties, the basis of cover is entirely founded on losses

Question 2

The basis of cover article addresses 3 coverage elements that are all claims-related

Answer 2

1. Establishes the insurance company’s retention, the amount of loss sustained by the company before treaty attaches and pays loss amounts in excess of this dollar figure
2. States in dollar the agreed reinsurance limit of liability
3. Expresses both retention and limit of liability in terms of the basis on which a loss is to be presented to the excess agreement, that is,
   - as a loss arising from an individual risk
   - as an accident or occurrence involving one or more policies
   - as a loss event affecting multiple risks
   - as the sum of losses that have been aggregated in some agreed manner over an agreed period

Question 3

Ultimate net loss

Answer 3

The amount of the loss the insurer is called on to pay after all recoveries, including salvage, subrogation, and other reinsurance

Question 4

Hours Clause

Answer 4

A provision in a reinsurance contract defining the period, usually measured in consecutive hours, during which claims from an occurrence may be included in the loss subject to the cover.

Most often applies to property catastrophe reinsurance; less frequently to occupational disease or other casualty loss occurrences.

Informal name for the definition of loss article