Reinsurance Pricing for the New Transitional Claims-Made GL Products

The losses that impact Casualty Excess of Loss Reinsurance are far different in nature and size than the losses that confront primary companies. The new claims-made ISO GL policy forces new data requirements for accurate pricing of these new covers. Data is sparse and difficult to obtain. This is particularly true for reinsurers who cannot directly control their ceding company's data base. An analysis was performed on the 329 individual reinsurance claims in this sample whose average individual loss size was $1.1 million. These results are compared to the results ISO obtained from average primary claims experience. The Marker-Mohl Backward Recursive method was applied to develop ultimate estimated losses by report lag subset. Surprising results are obtained that may allow reinsurers to avoid seriously under pricing reinsurance for these new products in their first years of existence. Some observations are also made about accurately assessing levels of exposure in pricing risks under a claims-made system, as well as discussion of what exposures would be covered in varying situations.