RCM and TATE support a number of different technical accounting methods for both
assumed ceding and retrocession contracts. These different technical accounting
methods can be used in various combinations on both the assumed ceding and retrocession
sides. In addition to a manual method, which allows the user to control the calculation
and make manual entries into the system, the system also supports the following
automated technical accounting methods:
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Proportional
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Non-Proportional |
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Each of these methods supports a variety of premium and co-insurance types, and
occurrence bases (e.g. LOD vs. Risk Attaching) for non-proportional contracts. There
are certain premium calculations, which are only supported under direct business
scenarios (e.g. Percentage of Sum Insured if Exposed for Excess of Loss contracts)
because the original sum insured is required for these calculations.
The system calculates the applicable exposure for each contract so that correct
premium and recovery transactions are generated on the retrocession side based on
the actual retained exposure from the assumed ceding side. These technical accounting
methods can be used in different combinations subject to certain industry standard
business rules. Some of the possible combinations for a single risk and coverage
transaction have been outlined below to give an idea of how these different methods
might be used together:
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Assumed Ceding Contract
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Corresponding Retrocession Contract |
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Facultative Quota Share
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Facultative Excess of Loss
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Facultative Excess of Loss
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Treaty Quota Share
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Treaty Proportional Surplus
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Treaty Risk Excess
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Facultative Quota Share
Facultative Excess of Loss
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Treaty Catastrophe Excess of Loss
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Treaty Quota Share
Facultative Excess of Loss
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Treaty Proportional Surplus
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Treaty Quota Share
Treaty Excess of Loss
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Treaty Quota Share
Treaty Catastrophe Excess of Loss
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Treaty Proportional Surplus
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Facultative Excess of Loss
Treaty Quota Share
Treaty Catastrophe Excess of Loss
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Facultative Excess of Loss
Treaty Quota Share
Treaty Catastrophe Excess of Loss
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Treaty Proportional Surplus
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Quota Share Support Overview
The SurSITE® system supports both treaty and facultative quota share
technical accounting methods for assumed ceding and retrocession contracts. The
retention or pool treaty is always defined as a 100% total order quota share type
of contract.
Premium Calculation Method
If the contract is a direct business contract where the original sum insured is
known, then the system calculates the proportion of the original premium due by
taking into account the maximum limit of the contract and the original sum insured
(for assumed ceding contracts) or the actual exposure ceded to the retention (for
the retrocession contract). The total order is applied after the overall calculation
is made, including any adjustments based on maximum limit.
If the contract is an indirect business contract, the calculations are made solely
based on the total order since the original sum insured is not available for a comparison
against the maximum limit established in the contract.
Commissions/brokerage costs are considered in calculations.
Co-insurance Options
SurSITE® supports two types of co-insurance methods for direct business
quota share contracts. The first type is "None," where no consideration is made
for co-insurance. In this case, only facultative quota share co-insurance can be
arranged for that portion of the risk, which exceeds the maximum limit. The total
order of this co-insurance must be calculated manually based on the total order
and maximum limit of the applicable quota share treaty. The second type is "Standard,"
where the exposure is reduced by the amount of the co-insurance prior to being applied
to the quota share treaty. In this case, facultative quota share contracts can be
used to reduce the exposure and "fit" the risk in under the maximum limit of the
quota share contract. Only the "None" method is supported for indirect business,
since the original sum insured is not known when the calculations are being made.
Surplus Support Overview
SurSITE® supports proportional surplus treaty provisions for both assumed
ceding and retrocession contracts. A single surplus contract can contain multiple
surplus units with different participants and different participation for each unit.
Surplus contracts are only supported for direct business since the original sum
insured is required for the premium and claims recovery calculations.
Premium Calculation Method
The premium calculation for a surplus unit is based on the proportional allocation
of the original premium based on the proportion of risk assumed by a surplus unit
in comparison to the original sum insured for assumed ceding contracts; and the
actual exposure ceded to the retention for the retrocession contract. The total
order is applied after the overall calculation is made, including any adjustments
based on upper and lower limits of the surplus unit. Commissions/brokerage costs
are considered in calculations.
Co-insurance Options
SurSITE® supports two types of co-insurance methods for direct business
surplus contracts. The first type is "None," where no consideration is made for
co-insurance. In this case only facultative quota share co-insurance can be arranged
for portion of the risk, which exceeds the coverage provided by the surplus contract.
The total order of this co-insurance must be calculated manually, based on the exposure,
which is in excess of the units of the surplus contract. The second type is "Standard,"
where the exposure ceded into the surplus contract is reduced by the amount of the
co-insurance prior to being applied to the surplus units. In this case, the facultative
quota share contracts can be used to reduce the exposure and "fit" the risk into
the different units of the surplus contract.
Quote Share/Surplus
SurSITE® supports the quota share/surplus reinsurance treaty combination as a hybrid
deployment of the two contract types by utilizing the Co-Insurance Option during
contract configuration. Thus, by combining the two contract types the surplus treaty
will absorb exposure above the maximum limit defined for the underlying quota share
contract. For example, it is possible to combine two underlying quota share treaties
configured for primary and excess business respectively with "excess" limits from
either quota share treaty being picked up by a single surplus treaty. The surplus
component can be deployed as a single line or multiple lines.
London Risk Excess Support Overview
SurSITE® supports London Risk Excess treaty contracts for both assumed
ceding and retrocession contracts. Risk Excess contracts are only supported for
direct business, since the original sum insured is required for a majority of the
premium, claims recovery, and co-insurance calculations and because they are most
commonly used for direct business only. A Risk Excess treaty contract can not be
used in conjunction with a Surplus contract for the same risk classification and
coverage on the same side of the retention, e.g. it is not possible to have an Assumed
Ceding Surplus and Risk Excess contract for the same cedent addressing the same
risk classification and coverage.
Premium Calculation Method
Risk Excess contracts support four different premium calculations; Proportional
Percentage, Straight Percentage, Percentage if Exposed, and Exposure Based. Commissions/brokerage
costs are considered in calculations for all four methods.
The Proportional Percentage method determines the proportion of the original premium
based on exposure ceded into the contract based on the original sum insured (for
assumed ceding contracts) or the actual exposure ceded to the retention (for a retrocession
contract) in relation to the indemnity and priority of the contract. The system
then applies a defined percentage to this proportional allocation.
The Straight Percentage method simply applies a percentage to the original premium,
regardless of whether the original sum insured for assumed ceding contracts or the
actual exposure ceded to the retention for a retrocession contract exceeds the priority
of the contract.
The Percentage if Exposed method applies a percentage to the original premium only
if the original sum insured (for assumed ceding contracts) or the actual exposure
ceded to the retention (for a retrocession contract) exceeds the priority of the
contract.
The Exposure Based method determines the proportion of the exposure ceded into the
contract based on the original sum insured (for assumed ceding contracts) or the
actual exposure (ceded to the retention for a retrocession contract) in relation
to the indemnity and priority of the contract. The system then applies a premium
rate per million to exposure being ceded; and it then prorates the premium for "number
of days on risk" in relation to the policy period, checking the inception and expiration
dates of the reinsurance contract.
Deductible Types
The Risk Excess contract supports two different types of contract deductibles used
in calculating claim recoveries; Aggregate Contract (or Annual Aggregate) Deductible
and Aggregate Occurrence Deductible.
Co-insurance Options
SurSITE® supports four types of co-insurance methods for risk excess
contracts. The first type is "None," where no consideration is made for co-insurance.
In this case only facultative quota share co-insurance can be arranged for that
portion of the risk that exceeds the coverage provided by the risk excess contract.
The total order of this co-insurance must be calculated manually based on the exposure,
which is in excess of the layers specified in the risk excess contract.
The second type is "Standard," where the exposure is reduced by the amount of the
co-insurance prior to being applied to the risk excess treaty. In this case facultative
and treaty quota share contracts can be used to reduce the exposure and "fit" the
risk into the underlying and excess limits of the contract.
The third type is "Proportional Allocation," where the reinsurers and the reinsured
benefit equally from any facultative or treaty quota share co-insurance. For both
the premium and any claim recovery calculations, both the indemnity and priority
are adjusted in proportion to the amount of the co-insurance such that the overall
exposure for the reinsurer is reduced.
The fourth type is "Applied Limits," where the reinsured benefits from any facultative
or treaty quota share co-insurance by lowering the indemnity of the contract in
proportion to the amount of the co-insurance. For both the premium and any claim
recovery calculations, only the priority is adjusted in proportion to the amount
of the co-insurance. The indemnity of the reinsurance contract remains the same.
Occurrence Basis
Risk Excess support includes both the Loss Occurring During (LOD) and Risk Attaching
(LORA) occurrence bases. If LOD is selected, only those claims, which occur during
the inception and expiration date of the risk excess contract are eligible for recovery.
If LORA is selected then any claim whose original policy inception date falls between
the inception and expiration date of the risk excess contract is eligible for recovery.
When transitioning from an LOD to a Risk Attaching Contract from one underwriting
year to the next for the same reinsurance contract, an LOD run-off contract must
be arranged and put in place as recoveries may fall outside the coverage of either
contract. The LOD contract will be allocated proportional amounts of premium based
on how long the risk is "on risk" (pro rata) or by "flat."
When transitioning from a Risk Attaching to an LOD occurrence basis from one underwriting
year to the next for the same reinsurance contract, 100% of premiums and claims
associated with the Risk Attaching contract no assignments will be made against
the LOD contract even though "technically" it could match based on the system selection
criteria.
LOD Premium Adjustment
If the LOD option for occurrence basis is selected for a contract, the system supports
two methods for adjusting the premium to reflect the occurrence basis. It supports
both the "Pro Rata" and the "Underwriting Year Matching" methods. The Pro Rata method
pro rates the premium based on the number of days the policy is "on risk" with the
LOD contract. The Underwriting Year Matching method allocates the full premium of
the policy to the applicable underwriting year of the LOD contract, i.e. it treats
the premium as Risk Attaching. Underwriting Year Matching is only intended to be
used for compatibility with less capable systems or for supporting legacy contract
reconciliation.
Reinstatements
The SurSITE® system supports both standard reinstatements as well as
unlimited reinstatements for Risk Excess contracts. The reinstatements are taken
into account during any recovery calculations for total cover calculations, which
limit the recoveries to the reinstatements defined in the contract. When a reinstatement
is used the system calculates the proportional amount of premium for the amount
of the reinstatement, which is used based on the reinstatement premium; and it generates
a transaction for the appropriate amount.
Since Risk Excess contracts only support variable pricing, the deposit premium is
used for the calculations, and a final premium adjustment must be entered manually,
based on the reinstatement premium report available in the system. This is done
when the contract is reconciled and is necessary since the reinstatements may vary
over time and the full amount of premium being collected is not known until the
contract approaches the run-off stage. The reinstatement report provided by the
system contains sufficient information to book additional premium once the contract
is ready for reconciliation.
Excess of Loss Support Overview
SurSITE® supports facultative and treaty Excess of Loss for both assumed
ceding and retrocession contracts. Excess of Loss contracts are supported for both
direct and indirect business. However, certain premium and co-insurance options
are only available for direct business where the original sum insured or ceding
exposure is required for the calculations. Commissions/brokerage costs are considered
in calculations.
Premium Calculation Methods
Excess of Loss contracts support three different premium calculations: "Fixed,"
"Straight Percentage," and "Percentage if Exposed." The Percentage if Exposed method
is only supported for direct business contracts.
The Fixed method does not result in any premium calculations and transactions. The
user must book the deposit premium and any subsequent fixed payments as adjusting
transactions against the contract in question.
The Straight Percentage method simply applies a percentage to the original premium
regardless if the original sum insured for assumed ceding contracts or the actual
exposure ceded to the retention for a retrocession contract exceeds the priority
of the contract.
The Percentage if Exposed method applies a percentage to the original premium only
if the original sum insured for assumed ceding contracts or the actual exposure
ceded to the retention for a retrocession contract exceeds the priority of the contract.
It is only supported for direct business contracts because it is related to the
original sum insured.
Aggregate Deductible
Excess of Loss provisions in the system support the Aggregate Contract Deductible
feature. The Aggregate Contract Deductible, also known as "Otherwise Recoverable,"
is an amount which must be retained by the reinsured prior to counting any losses
against the priority for a claim. Any retention for any claim is counted towards
the deductible until it has been satisfied.
Co-insurance Options
SurSITE® supports four types of co-insurance options for Excess of Loss,
but only for direct business contracts. For indirect business, only the "None" co-insurance
option is supported.
The first co-insurance option (for direct and indirect business) is "None," where
in fact no consideration is made for co-insurance. In this case, only facultative
quota share co-insurance can be arranged for that portion of the risk that exceeds
the coverage provided by the Excess of Loss contract. The total order of this co-insurance
must be calculated manually based on the exposure, which is in excess of the units
defined in the Excess of Loss contract. In the case of indirect business the "ultimate
net loss" figure (UNL) is used to calculate the recovery amount and no limitations
based on original sum insured or ceding exposure is taken into account (as this
information is not available).
The second option is "Standard," where the exposure is reduced by the amount of
the co-insurance prior to being applied to the Excess of Loss treaty. In this case,
facultative and treaty quota share contracts can be used to reduce the exposure
and "fit" the risk into the underlying and excess limits of the contract.
The third option is "Proportional Allocation," where the reinsurers and the reinsured
benefit equally from any facultative or treaty quota share co-insurance. For both
the premium and any claim recovery calculations the indemnity and priority are adjusted
in proportion to the amount of the co-insurance such that the overall exposure for
the reinsurer is reduced.
The fourth option is "Applied Limits," where the reinsured benefits from any facultative
or treaty quota share co-insurance by lowering the indemnity of the contract in
proportion to the amount of the co-insurance. For both the premium and any claim
recovery calculations, only the priority is adjusted in proportion to the amount
of the co-insurance. The indemnity of the reinsurance contract remains the same.
Occurrence Basis
Excess of Loss contracts support both the Loss Occurring During (LOD) and Loss Occurring
Risk Attaching (LORA) occurrence bases. If LOD is selected, only those claims that
occur during the inception and expiration date of the Excess of Loss contract are
eligible for recovery. If LORA is selected, then any claim whose original policy
inception date falls between the inception and expiration date of the risk excess
contract is eligible for recovery.
When transitioning from an LOD to a Risk Attaching occurrence basis from one underwriting
year to the next for the same reinsurance contract, an LOD run-off contract must
be arranged and put in place, as recoveries may fall outside the coverage of both
contracts. The LOD contract will be allocated proportional amounts of premium based
on how long the risk is "on risk."
When transitioning from a Risk Attaching to an LOD basis from one underwriting year
to the next for the same reinsurance contract, for 100% of premiums and claims associated
with the Risk Attaching contract no assignments will be made against the LOD contract,
even though "technically" it could match based on the system selection criteria.
LOD Premium Adjustment
If the LOD option for occurrence basis is selected for the contract, the system
supports two methods for adjusting the premium to reflect this: the "Pro Rata" and
the "Underwriting Year Matching" methods. The Pro Rata method pro rates the premium
based on the number of days the policy is "on risk" with the LOD contract. The Underwriting
Year Matching method allocates the full premium of the policy to the applicable
underwriting year of the LOD contract, i.e. it treats the premium as Risk Attaching.
Underwriting Year Matching is only intended to be used for compatibility with less
capable systems or for supporting legacy contract reconciliation.
Reinstatements
The SurSITE® system supports standard reinstatements for Excess of Loss
contracts. These reinstatements are taken into account during any recovery calculations
for total cover calculations, which limit the recoveries to the reinstatements defined
in the contract. When a reinstatement is used, the system calculates the proportional
amount of premium for the amount of the reinstatement, which is used based on the
reinstatement premium; and it generates a transaction for the appropriate amount.
If the contract is "fixed price," the entire amount of the contract is used in the
calculations. If it uses a variable premium calculation method such as Percentage
of Premium, the deposit premium is used for the calculations and a final premium
adjustment must be entered manually based on the reinstatement premium report available
in the system. This is done when the contract is reconciled and is necessary since
the reinstatements may vary over time and the full amount of premium being collected
is not known until the contract approaches the run-off stage. The reinstatement
report provided by the system contains sufficient information to book additional
premium once the contract is ready for reconciliation. Commissions/brokerage costs
are considered in calculations.
Catastrophe Excess of Loss Support Overview
SurSITE® supports Catastrophe Excess of Loss treaty provisions for both
assumed ceding and retrocession contracts. Catastrophe Excess of Loss is supported
for both direct and indirect business.
Premium Calculation Methods
Catastrophe Excess of Loss in the system supports two different premium calculations,
"Fixed" and "Straight Percentage."
The Fixed method does not result in any premium calculations or transactions. The
user must book the deposit premium and any subsequent fixed payments as adjusting
transactions against the contract in question.
The Straight Percentage method simply applies a percentage to the original premium
regardless of whether either the original sum insured for assumed ceding contracts
or the actual exposure ceded to the retention for a retrocession contract exceeds
the priority of the contract.
Aggregate Deductible
Catastrophe Excess of Loss in the system supports Aggregate Contract Deductible
treatments only. The Aggregate Contract Deductible, also known as "Otherwise Recoverable,"
is an amount which must be retained by the reinsured prior to counting any losses
against the priority for an occurrence. Any retention for any claim or occurrence
is counted towards the deductible until it has been satisfied.
Occurrence Basis
Catastrophe Excess of Loss provisions in the system support three occurrence bases:
the Loss Occurring During (LOD), Risk Attaching (LORA), and Risk Attaching with
Interlocking (LORA with Interlocking). If LOD is selected, only those claims, which
occur during the inception and expiration date of the Excess of Loss contract, are
eligible for recovery. If Risk Attaching is selected then any claim whose original
policy inception date falls between the inception and expiration date of the risk
excess contract are eligible for recovery. If Risk Attaching with Interlocking is
selected, also known as "Bridging the Gap," then any claim whose original policy
inception date falls between the inception and expiration date of the Catastrophe
Excess of Loss contract is eligible for recovery, however, if there are multiple
claims which belong to different interlocked contracts, the amount recoverable is
adjusted in proportion for all applicable Catastrophe Excess of Loss contracts such
that both the priority and indemnity of the contracts are reduced as per the LSW
304A or interlocking clauses for Catastrophe Excess of Loss contracts.
When transitioning from an LOD to a Risk Attaching Contract from one underwriting
year to the next for the same reinsurance contract, an LOD run-off contract must
be arranged and put in place as recoveries may fall outside the coverage of both
contracts. The LOD contract will be allocated proportional amounts of premium based
on how long the risk is "on risk."
When transitioning from a Risk Attaching to an LOD contract from one underwriting
year to the next for the same reinsurance contract, for 100% of premiums and claims
associated with the Risk Attaching contract no assignments will be made against
the LOD contract even though "technically" it could match, based on the system selection
criteria.
LOD Premium Adjustment
If the LOD option for occurrence basis is selected for the contract the system supports
two methods for adjusting the premium to reflect the occurrence basis. The system
supports both the Pro Rata and Underwriting Year Matching methods. The Pro Rata
method pro rates the premium based on the number of days the policy is on risk with
the LOD contract. The Underwriting Year Matching method allocates the full premium
of the policy to the applicable underwriting year of the LOD contract, i.e. it treats
the premium as Risk Attaching. The Underwriting Year Matching is only intended to
be used for compatibility with less capable systems or for supporting legacy contract
reconciliation.
Reinstatements
The SurSITE® system supports standard reinstatements for Catastrophe
Excess of Loss contracts. The reinstatements are taken into account during any recovery
calculations for total cover calculations, which limit the recoveries to the reinstatements
defined in the contract. When a reinstatement is used, the system calculates the
proportional amount of premium for the amount of the reinstatement, which is used,
based on the reinstatement premium; and it generates a transaction for the appropriate
amount.
If the contract is "fixed price," the entire amount of the contract is used in calculations.
If it employs a variable premium calculation such as percentage of premium, the
deposit premium is used for the calculations and a final premium adjustment must
be entered manually based on the reinstatement premium report available in the system.
This is done when the contract is reconciled and is necessary, since the reinstatements
may vary over time and the full amount of premium being collected is not known until
the contract approaches the run-off stage. The reinstatement report provided by
the system contains sufficient information to book additional premium once the contract
is ready for reconciliation.
Manual Contracts Overview
SurSITE® supports Manual facultative and treaty contracts for both assumed
ceding and retrocession contracts. Manual contracts are supported for both direct
and indirect business. These contracts do not perform any automatic calculations
for premium, claim recoveries, or claim notifications. These can be used for one
off contracts whose methods are not supported by the system where a manual option
is practical. Premium and claim transactions are booked manually using adjusting
transactions through the reinsurance contract management interface. These contracts
and any manual transactions are not taken into account for any of co-insurance methods
defined above and are treated completely separately.