Re[2]: Hypothetical example

Mary Frances Miller ( Mary_Frances_Miller@sedgus.com )
Thu, 20 Nov 1997 11:15:10 -0600

Ideally, you would want to list all of the occurrences in
chronological order and then show the claim date for the excess as the
DOL for the occurrence which (all occurrences at ultimate) puts you
into the excess. Of course, that would make the "incurred" date on
the policy an estimated number which wouldn't be fixed until all of
the claims were reported and at least enough devlopment had occurred
to pinpoint which claim breaks the camel's back. A contingent
incurred date...hmm.

For malpractice tail coverage, though, I think the trigger is not the
report date. If you sell a tail cover on 1/1/98 covering claims
occurring between 1/1/90 and 12/31/97, and reported after 1/1/98,
haven't you incurred all of the claims on the date you write the
coverage?

Mary Frances Miler

______________________________ Reply Separator _________________________________
Subject: Re: Hypothetical example
Author: "Matthew P. Merlino" <merlino@mindspring.com> at _internet
Date: 11/20/97 10:28 AM

When is the "incurred" date on a policy with an aggregate dedutible or
similiarly on an aggregate reinsurance cover? It isn't the date the cover
is pierced on a paid or reported basis. This date, more often than not
falls outside the policy term. To me the occurrence date is debatable but
in no circumstances should fall outside the policy term assuming that
premiums have been earned over the term. In situations where the occurrence
date is questionable, I usually look to how the premiums have already been
earned. How earned defines how losses recorded. Since half the premium has
been earned, half the expected losses should be recorded. I think this is a
vote for 3 or 4.

There are many situations where the occurrence date is hard to define, for
example:

Bid and Performance Surety Bonds
Credit default type coverages
Aggregate coverage
tail malpractice coverage (report date outside of earnings period)

In all of the above, the "incurred" date has to be matched to sometime in
the period when the premiums are earned. Otherwise the basic principle of
matching revenue with expense isn't met.

(Note:In many cases the insurance company does not have a choice on how they
earn premium. The state in which the company is domiciled frequently has
laws that require pro rata earnings. Other earnings patterns may be used
only with the expressed permission of the commissioner.)









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