Pricing Excess-of-Loss Casualty Working Cover Reinsurance Treaties

An excess-of-loss reinsurance treaty provides the primary insurance company (cedant) with reinsurance protection covering a certain layer of loss for a specified category of individual (direct) insurance policies. Hence, for each loss event (occurrence) coming within the terms of the treaty, the reinsurer reimburses the cedant for the dollars of loss in excess of a certain fixed retention up to some maximum amount of liability per occurrence. For example, if the cedant's retention is $100,000 and the reinsurer's limit of liability is $400,000, then the reinsurer covers losses in the layer $100,000 up to $500,000; in reinsurance terminology, this is the layer $400,000 excess of $100,000. The reimbursement generally takes place at the time that the cedant reimburses the injured party. Allocated loss adjustments expenses are usually shared pro rats according to the loss shares, although in a few treaties they may be included in with the loss amounts before the retention and reinsurance limit are applied. Claim Size Modeling/Loss Distribution/Premium Analysis/Reinsurance