Three common bases for policies in treaty reinsurance are losses occurring during

(LOD), risk attaching during (RAD), and claims-made.

i. Explain how these bases work.

An annual excess of loss reinsurance policy with inception date = 1 October 2012 is underwritten for the layer £1.5M xs £0.5M. The table below shows some of the claims of the reinsured.

ii. Calculate the total amount that can be claimed by the reinsured for the claims in the table, under the assumption that the reinsurance policy is:

(a) on an RAD basis;

(b) on an LOD basis and

(c) on a claims-made basis. Explain the calculations.

You can assume that there is no indexation clause.

Claim ID Inception date of original policy Loss date Reporting date Amount (£)

1 01/07/2012 24/03/2013 08/12/2013 647,935 2 01/10/2012 21/02/2013 18/08/2013 204,973 3 01/10/2012 03/07/2012 03/07/2012 179,985 4 01/01/2012 19/12/2012 17/03/2013 812,868 5 01/01/2012 11/02/2013 09/10/2013 37,036 6 01/07/2012 28/01/2012 03/02/2012 2,058,075 7 01/10/2012 14/01/2013 13/08/2013 219,190 8 01/01/2012 20/02/2013 06/03/2013 665,041 9 01/04/2012 11/08/2013 07/02/2014 1,152,750 iii. Assume now that this is excess of loss liability cover and that there is a London Market standard indexation clause. The clause is based on the average weekly earnings. What is the amount that is going to be ceded to the £1.5M xs £0.5M layer for Claim no. 9, assuming that

• Payments of £500,000, £200,000 and £452,750 will be made on 13 May 2014, 14 September 2015 and 10 February 2016, respectively, at which point the claim is settled.

• Index at 1 October 2012 = 143.

• Index at 11 August 2013 = 147.

• Index at 7 February 2014 = 149.

• Index at 13 May 2014 = 150.

• Index at 14 September 2015 = 155.

• Index at 10 February 2016 = 157.

Explain your calculations. You can assume that the claim is only bodily injury and that therefore the index clause applies to the whole claim.