Advanced Reinsurance Claims MGMT

ADVANCED INSURANCE AND
REINSURANCE CLAIMS
MANAGEMENT
Sponsored by
Prepared for Africa Re by the
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The power of knowledge fitting the pieces together
Advanced Insurance and Reinsurance Claims Management

©London School of Insurance 2017
v1.0 - 11072017
INDEX
INTRODUCTION.............................................................................................4
Section 1
1.1 Review of previous courses......................................................................4
1.2 Learning objectives.......................................................................................4
DEVELOPING A CLAIMS PHILOSOPHY AND A CLAIMS

Section 2
MANUAL...........................................................................................................5
2.1 Local regulatory position...........................................................................5
2.2 Objectives and strategy..............................................................................5
2.3 Consultation with key people within the organization................6
2.4 Developing a claims manual.....................................................................6
2.4.1 The document itself.........................................................................6
2.4.2 Content....................................................................................................7
2.4.2.1 Applicability.................................................................8
2.4.2.2 Definitions....................................................................8
2.4.2.3 Responsibilities and competences................8
2.4.2.4 Quality standards.....................................................8
2.4.2.5 Anti-Fraud....................................................................9
2.4.2.6 Anti-Corruption.........................................................9
2.4.2.7 Sanctions.....................................................................9
2.4.2.8 Reserving...................................................................10
2.4.2.9 Reporting...................................................................10
2.4.2.10 Claims negotiation and settlement..............10
CLAIMS RESERVING AND REPORTING...............................................11

Section 3
3.1 Insurance aspects.......................................................................................12
3.1.1 Individual claims - “average cost“ basis..............................12
3.1.2 Setting case reserve......................................................................12
3.1.3 Claims reporting...............................................................................14
3.2 Reinsurance aspects.................................................................................15
3.2.1 Reserving.............................................................................................15
3.2.2 Claims reporting for reinsurers................................................16
DEALING WITH COMPLEX CLAIMS......................................................18

Section 4
4.1 Insurance aspects.......................................................................................18
4.1.1 Business interruption....................................................................18
4.1.2 Third party bodily injury and damage claims...................20

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The power of knowledge fitting the pieces together 2
4.2 Reinsurance aspects.................................................................................22
4.2.1 Sanctions............................................................................................22
4.2.2 Increased complexity...................................................................23
4.2.3 The timing of claims notifications..........................................23
4.2.4 The additional clauses in reinsurance contracts...........24
4.2.5 The abilities of the ceding company....................................24
Section 5 RELATED COMPLEX CLAIMS ISSUES.................................................25

5.1 Alternative risk transfer claims............................................................25
5.2 Insurance linked securities (ILS).........................................................28

Section 6 CATASTROPHE CLAIMS MANAGEMENT............................................29
6.1 Insurance aspects......................................................................................32
6.2 Reinsurance aspects................................................................................37
Section 7 INTERNATIONAL CLAIMS AND LITIGATION ASPECTS.................39

7.1 Insurance aspects - Particular issues.............................................40
7.2 Reinsurance aspects - Particular issues........................................41

Section 8 CONCLUSION..............................................................................................43

Section 9 CASE STUDY - THE AVERAGE COST METHOD...............................44

Section 10 TEST - MULTIPLE CHOICE QUESTIONS.............................................49
Section 11 APPENDIX A.................................................................................................51


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1. INTRODUCTION
1.1. Review of previous courses
As we have seen in course 6, effective claims management is one of the most important activities in a successful
insurance or reinsurance company.
Paying valid claims is what the insurance and reinsurance business is all about. However good the risk manage-
ment of a client may be, claims are at some stage inevitable. Failure to honour the promise of cover in the event of a
valid claim does not only damage the credibility of the company providing cover, but of the industry as well.
This course “advanced insurance and reinsurance claims management” is the seventh in a series of courses.
It follows the sixth course – “An Introduction to Insurance and Reinsurance Claims Management” – which cove-
red the basic elements and processes required to be able to negotiate and adjust simple insurance and reinsurance
claims.
The reader of this course should have read at least the previous introductory course prior to reading this manual
and should be familiar with reinsurance terminology, forms and types of reinsurance and reinsurance documenta-
tion - all covered in previous courses.
The objective of this course is to further enhance the knowledge gained by now covering advanced claims subjects.
The main sections of this manual are as follows:
1.2. Learning Objectives
Section 2 – Developing a claims philosophy and claims manual

Learning objective: To understand the process to develop a claims strategy and document this in a concise claims
manual. The insurance perspective, the reinsurance perspective.
Section 3 - Claims reserving and reporting

Learning objective: To understand the process of claims reserving and reporting. The insurance perspective, the
reinsurance perspective.
Section 4 – Dealing with complex claims

Learning objective: To appreciate the factors necessary resolve complex claims. The insurance perspective, the
Section 5 – Related complex claims issues

Learning objective: To be familiar with related complex claims issues such as those arising in alternative risk trans-
fer structures and insurance linked securities.
Section 6 – Catastrophe claims management

Learning objective: : To appreciate catastrophe claims management. The insurance perspective, the reinsurance
perspective.
Section 7 – International claims and litigation aspects

Learning objective: To be familiar with international claims and litigation aspects. The insurance perspective, the
We hope this manual will provide you with the additional knowledge you will need to reach these goals, and will
also encourage your further research of this important aspect of insurance and reinsurance.
Other manuals will soon be available to assist you with these further researches.

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2. DEVELOPING A CLAIMS PHILOSOPHY AND A
CLAIMS MANUAL
Learning objective: To understand the process to develop a claims strategy and document this in a concise claims
manual. The insurance perspective, the reinsurance perspective.
2.1 Local regulatory position
As we have seen in course 6, it is most important to appreciate best practices and to clearly understand the regu-
latory position in the country(ies) in which the company operates.
Kenya, for example, issued “Guidelines on claims management for the insurance industry” in June 2012 with the
aim – quote – “to enhance efficiency, transparency, and disclosure of information to policyholders during claims
processing and increase consumer satisfaction.” Unquote.
The guidelines cover how a company should respond in the first instance to a claimant, that the company should
have a claims manual, the scope a company has to decline a claim, fraud detection and prevention, and also the Gui-
delines deal with special issues involving motor claims.
The claims manual essentially needs to deal with the communications with the claimant, with timeframes for res-
ponses and payment of the loss.
Any claims strategy will need to take account of local regulation.
However an insurance company of course needs to consider not only its communication with the insured, but it
needs to have in place all the internal processes to record the losses, adjust them, account for them, and to provide
reports and statistics – including the vital aspect of good reserving - to management and the regulator. It then also
needs to consider its communication with reinsurers, the allocation of losses to the various treaties and facultative
arrangements, the conditions under the various treaties – exclusion clauses, hours clauses, claims co-operation
clauses etc. Finally the correct reporting to the relevant reinsurers, accounting to the reinsurers, the collection of
payments due and the information that will be required for negotiation and renewal.
2.2 Objectives and strategy
The happening of a claim is the opportunity to re-confirm the faith the insured had when entrusting risks to you
as an insurance company. At a minimum the insured’s financial position, if not the insured’s universe can crumble if
the insurance company fails in its obligations to pay a valid claim.
Similarly failure by a reinsurance company to pay a valid claim to its reinsured can result in the financial failure of
the latter.
The objective thus should be to make the claims process as simple and transparent as possible for the insured/
reinsured, while ensuring efficient and cost-effective internal processes to retain data, adjust the claim, effect any
reinsurance/retrocession recoveries, and fulfil all reporting obligations, all the time complying with local laws and
regulations.
It is important to appreciate:
- The need to get the right balance between expense control and having the necessary resources to quickly
and efficiently control claim severity. For example by being able to field an effective response team that is able to
protect and/or arrange for the provision of critical assets to a commercial insured who has suffered loss, it may be

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possible to immediately cap the amount of the loss, and to materially reduce any consequential loss of profits. Equal-
ly in third party liability cases by having the resources to effect the right approach to claimants and developing the
right relationship with them, it may be possible to reduce the number of claimants who seek legal representation and
thus control the severity of potential losses.
- It is often not the large claims that have the greatest impact on net results (loss severity), but the mass of
smaller and mid-sized losses (claims frequency). Such claims are often within the retention of the insurer (higher
loss ratio) and can severely impact overall expenses, resulting in a much higher combined ratio.
- By having an objective and consistent approach to clams adjustment, it is possible to deliver more homoge-
nous and reliable data, not only for better management control, but also for the provision of better information to
stakeholders and reinsurers.
2.3. Consultation with key people within the organization
Just as no two human beings are ever exactly the same, so every company will always be different from those
around it. Each company will have, over the years, produced its own procedures and methods of working, and this
will have been based on the decisions of numerous human beings who have directed those operations.
It is thus important to get to know and understand the people and processes who will have or could have an impact
on the claims process. While personalities and history can be changed to conform with new ideas and processes,
there may also have been a good reason why in this particular company a process will work better if some current
aspect is respected. This may be based on local peculiarities of custom or religion, or a particular manager who
cannot be either removed or ignored.
To know the company, one needs to identify the key people and consult with them. If their co-operation is neces-
sary, then how best can that be achieved?
2.4. Developing a claims manual.
2.4.1. The document itself
Firstly there should be a certain discipline in the creation of documents. The initial page might look as follows:
Document Information
Document Properties:
Document: Claims Processing Guidelines of the XYZ (Re)In-

surance Company
Version:
Date:
Author(s):
Contact Person:
File Name:
Effective Date:
Area of application:

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Amendments or Changes:
Version Date Reason for and Author(s)

Extent of Changes
Authorisation:
Version Date of Authorisation Authorised by
In this way it is easy to know who created the document, who approved it, and how recent the version you are
reading is.
2.4.2. Content
Basic content of such a document might be as follows:
Preamble
General Provisions
Applicability
Definitions
Responsibilities and Competences
Quality Standards
Anti-Fraud
Anti-Corruption
Sanctions
Reserving
Reporting
Claim negotiation and settlement
Specific Provisions
Motor Business
Property Business
Fronting
Facultative Reinsurance Acceptances
Preamble – The preamble explains the purpose of the manual, to whom it should apply, and the reason for its
existence.
General Provisions – The general provisions will be the processes applicable to all claims from (re)insureds and
third parties. Each sub-section is dealt with briefly below.
Specific Provisions – The specific provisions will be particular to the company in question. An insurance com-

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pany may need to pin-point certain important regulatory requirements with regard to motor business or may need
to highlight important aspects of settling fronted business claims. A reinsurance company might be particularly
sensitive to sanctions requirements, or have special procedures for claims relating to structured reinsurance tran-
sactions.
The General Provisions:
2.4.2.1. Applicability
To whom does this manual apply? It may be necessary in a group of companies to specifically name certain com-
panies in the group, or it may simply be “this manual applies to all persons employed in the XYZ (Re)insurance Com-
pany who are in any way involved in the processing of claims”.
2.4.2.2. Definitions
It is very important that all persons to whom the manual applies understand the terms in the same way. For exa-
mple - «Claim» means any notification of loss which could result in a demand for payment made against XYZ by a (re)
insured or a third party under an insurance policy or reinsurance contract, including any threat or initiation of any
suit, of any administrative or regulatory proceeding, or of a court or arbitration proceeding.
It is often surprising how different people interpret the same word differently, and such words as “Claims Notice”,
“Constructive Claims Notice”, “Reserve”, “Additional Case Reserve” and other terminology that may be sued in the
manual should be defined.
2.4.2.3. Responsibilities and competences
Who is the person responsible for claims within the organisation?
That person will be responsible, inter alia, for:

a. Supervising the implementation and application of this manual.
b. Ensuring periodic controls to verify that the manual is being correctly applied.
c. Appointing suitable employees to carry out those tasks which the responsible person will not per
form such as, for example:
i. Evaluating the validity of a claim.
ii. Establishing facts and circumstances.
iii. Making offers to the claimant.
iv. Establishing reserves.
v. Reporting.
2.4.2.4. Quality standards
A quality standard is a description of the time lines, or the requirements or the characteristics or the specifications
necessary to meet the level of service expected or the purpose of the product.
As noted above, regulators may set the standards for, for example, the time lines within which an insurance com-
pany must respond to a claimant. It will be necessary to refer to local regulations to ensure that the manual is com-

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pliant with all local regulatory requirements.
Equally there will be internal quality standards, for example, how a claims notice is recorded internally and the
internal employees to whom claims details should be circulated. Proper procedures to set up a claims file and a check
list of items to be controlled to ascertain whether the claim is covered or not. Anti-fraud and sanctions checks.
The check list of items to be controlled to ascertain whether the claim is covered or not might include, for example:
The contract number and the numbers or existence of any related contracts
The title and name of the (re)insured
The contract scope or location
The contract period
Covered perils and any extensions of, or amendments to, the cover
Limits, and any co-(re)insurance, excesses, franchises, deductibles or retentions that might apply
Exclusions
Clauses
Conditions
The share that the (re)insurer has in the cover
That the premium has been paid within the required period
That the situation of the loss is compatible with the information received at the time of accepting the risk or treaty.
What obligations may exist or notifications may be necessary to reinsurers or
retrocessionaires.
2.4.2.5. Anti-Fraud
In the course of processing the claim, claims staff should carefully review any circumstances that might give rise
to the possibility of fraud being committed by (re)insured or a related third party. Issues might include the poor
financial situation of the (re)insured, or missing or incomplete information or poor or suspicious supporting docu-
mentation.
The manual should also clearly state what action the claims staff should take if fraud is suspected.
2.4.2.6. Anti-Corruption
Money laundering, bribery and corruption are important topics in the modern world, and many criminal organisa-
tions seek ingenious ways to cleanse their dirty gains.
The claim adjusting process, especially effecting payments, may give rise to a suspicion that the (re)insurer is
facilitating illegal and corrupt practices. Suspicion may arise where the bank account from which the premium is re-
ceived is different to the bank account in which the claim needs to be paid. Contracts with large premiums that have
a stream of claims which just leave an acceptable profit for the (re)insurer, coupled with poorly documented costs, or
expenses or commissions may also be indicators of corrupt practices.
The manual should also clearly state what action the claims staff should take if corruption is suspected.
2.4.2.7. Sanctions
As has been noted in previous courses, sanctions are a relatively new requirement with which (re)insurers must
comply. Sanctions can be issued by various countries at any time. They may also be changed at any time, even on a
daily basis, so serious attention must be given to having good and timely access to sanctions information providers.

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Sanctions checks might include, for example:
The nationality or occupation or status of the insured, or the claimant.

The location of the insured or the location of the loss.
The type and origin of the goods or services.
2.4.2.8. Reserving
Reserving is dealt with in detail in section 3 below.
2.4.2.9. Reporting
A (re)insurance company has a number of obligations to both its stakeholders and the regulatory authorities. Va-
rious executives and departments may also need claims information to be effective. Also there may be obligations
to advise and/or co-operate with reinsurers and/or retrocessionaires. It is thus important that new claims, large
claims, unusual claims, or a string of unexpected claims, or increases in severity, or changes to reserves are properly
recorded and the appropriate reports issued at the appropriate dates.
The claims department may also be responsible for monitoring newspapers, judgements, regulations and laws
which could affect both the frequency and severity of claims, and again the relevant reporting requirements need
to be considered.
2.4.2.10. Claim negotiation and settlement
The process has been dealt with in detail in the previous course – Introduction to Insurance and Reinsurance
Claims.
Having reviewed coverage and the other elements already considered in the claim manual items above, the claims
staff will either agree to settle the claim, or to propose partial settlement or to deny coverage. The claim manual will
need to consider these alternatives and the processes necessary to complete these alternatives with the necessary
authorisations.
Denial of Coverage:
If a claim is either not covered or only partially covered, what processes will the claims staff need to follow? Pe-
rhaps legal consultation will be necessary, or a management decision will be required. What will be the processes
for this? Will there be different processes depending on the complexity and the amount of the claim? What sign-offs
will be required?
Settlement of Claim:
If the claim can be settled, again the process and authorisations need to be clearly defined, with due consideration
of corrupt practices, payments that may be required from reinsurers and liquidity.

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3. CLAIMS RESERVING AND REPORTING
Learning objective: To understand the process of claims reserving and reporting. The insurance perspective, the
Claims reserving is a journey into the unknown. No-one knows exactly what the future may hold. What may be the
rate of exchange of local currency in the international markets, what may be the future rate of inflation, how legisla-
tion may evolve, what catastrophes may occur, what new types of claim may emerge in the marketplace.
The objective of claims reserving is to turn uncertainty into a number, and this number must be inserted into the
company’s accounts, and the company’s accounts must, by law, reflect a true and fair view of the company’s financial
position at the time the accounts are drawn up.
Politics may also play a part. If the company has misjudged the profits from its portfolios of business, the claims
reserve number may result in the company producing a loss, or even dropping below the required margin of sol-
vency. As any number must, by the nature of it, be uncertain, it may be tempting for senior managers to talk down
the number produced by more junior personnel, to “engineer” a number that better fits shareholder expectations.
There is no “best method” to calculate reserves. One cannot definitely decide whether claims reserving is an art or
a science. What is important is that the process employed is consistent, and where any changes to the process are
made, that the result of the change in process is clearly understood when compared with any previous process. One
cannot measure the credibility of a process if one changes the process every year.
Reserving methods are numerous, from the simple to the highly complex. Historically claims reserves were based
on claims which had been reported to the company. These were individually assessed as to ultimate payment, and
the total of these assessments was the claims reserve number to be entered into the company’s annual accounts.
Today reserving methods analyse the data of “reported” claims. There is a breakdown to take account of claims
expenses, to understand the actual claims cost, and the claims frequency, to understand the reporting pattern and
thus how the claims may run-off. A model is then built to predict the future based on the past, plus estimated future
social, legal, political and economic developments.
Basically therefore claims reserving is a prediction of how the company’s current portfolios of “promises to pay”
will develop over time and the size of the liabilities the company needs to add as a debit in its current accounts to
cover these future costs. This should take account of all reasonably foreseeable factors, it should represent a true
and fair view and it should be the best shot or best estimate that can be given at that time.
It is important from the beginning to distinguish between different types of claims reserve. One type of claims
reserve is the claims reserve which needs to be set up for a loss that has already occurred. This is different from a
claims reserve being set up for a loss or losses which will only occur in the future.
If, for example, the company insures a motorist who has a serious accident, then there will be a period of time
between the occurrence of the loss and the final payment of the claim. This might be weeks or even years if certain
injuries are difficult to assess, or are the subject of a court case. During this time the insurer needs to set up a reserve
which reflects their best estimate of expected future payments. Each time there is an interim payment this reserve
needs to be reassessed.
This type of claim reserve can also be broken down into two categories. For both categories the loss has already
occurred, but as regards the first category the loss has already been reported. As regards the second category the
loss has occurred but either has not been reported/reserved enough (IBNER: Incurred but not enough reported/
reserved) or simply has not yet been reported to the (re)insurer (IBNR: Incurred but not reported).
Clearly a lot can happen during the life of a claim. The expected cost can increase or decrease as injuries improve
or worsen or court judgements can be higher or lower than expected, or an expected favourable judgement turns out
to be unfavourable, and legal costs and inflation can also have a material influence on ultimate payments.
The other type of claims reserve is the claims reserve set up, often on an annual basis at the end of each financial
year, to cover losses which will occur in the future on currently unexpired risks, that is to say policies which are still
current at the end of the financial period and thus are still exposed to losses until they expire.

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In addition to IBNERs and IBNRs noted above, insurers may also take account of IBNYR, ACRs, and LAEs.
IBNYR – incurred but not yet reported – is really just another way of stating “incurred but not reported” – IBNR
– it has the same impact as IBNR. An ACR is an additional case reserve usually added by reinsurers to the case
reserves set up by the ceding company, where the reinsurers prefer a more cautious than that taken by the cedant.
LAE stands for “Loss Adjustment Expenses” and these are the expenses to carry out investigations of losses and
to prepare all the calculations necessary to ascertain the cost of the claim and often also to negotiate with the clai-
mant. If these costs are calculated for an identified claim they are known as “Allocated Loss Adjustment Expenses
(ALAE)”, and of they are calculated over a whole portfolio of claims they are known as “Unallocated Loss Adjustment
Expenses (ULAE)”.
Getting reserves right is important, as they can have a major impact on the financial strength of the company,
on the accuracy of the pricing calculated by the insurance company to properly cover its insured, and the possible
heavy loading factor that reinsurers will include in their pricing, if they do not have confidence in the figures being
provided to them by the ceding company.
The overall loss or claims reserve will be made up of:
• The total of the reserves set up on individual losses – these are “case” reserves – that is to say
a member of the claims staff has reviewed each loss individually and assessed the likely ultimate payment,
including associated legal costs and other expenses.
• The application of various assumptions to blocks of claim data, and calculating bulk reserves on
that basis. For example in a large insurance company it may not be economic to review all small liability
claims, so the development of the overall book of small claims might be reviewed over several of the past
years, and assumptions made as to its likely development over the next year, based on this history and as-
sumptions about factors such as, for example, inflation, the evolution of court judgements, and any expected
changes in the law.
There is no sure method assuring the accuracy of any resulting amounts. What is important is a consistent ap-
proach in the reserving process, coupled with experience.
3.1. Insurance aspects
3.1.1. Individual claims – “average cost” basis
Where the company is faced with large numbers of smaller claims which are generally quickly settled, or there is
a new claim where there is not enough information to set a reserve, reserves may the set on an “average cost” basis.
As noted above there is no sure method of assuring the accuracy of one reserve method or another, but the ave-
rage cost method can be monitored against actual, and as the actual figures emerge over time, so this method can
be adjusted and improved.
Under the average cost method, the ultimate loss for the year in question must be estimated, and the expected
number of claims for the year must also be estimated, and dividing the ultimate loss by the number of claims gives
the average cost per claim.
A detailed approach to this aspect of claims reserving is given in the Case Study in section 9 below.
3.1.2. Setting case reserves
Setting case reserves, that is to say, estimating the cost of a claim that has been made under a particular policy is
also a challenging task.

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Establishing certain principles for setting case reserves is important.
For example, should the reserve person estimate the cost of the claim as if it would be settled in the short term, or
should the ultimate cost of the claim be considered. Under the first alternative, the reserve person needs to consider
short term claim severity – the amount being claimed, the likely percentage of that amount which will finally be sett-
led, and all associated fees and expenses. Under the second alternative the reserve person must also consider the
time which will elapse between the present and the future date of final settlement – which could be months or years
away. Equally the reserve person must consider likely new legislation during that period, economic aspects such as
inflation, and expected judicial and even social trends.
As regards these aspects – time, legal developments and economic developments – it may be better to apply bulk
estimates, rather than to apply estimates on a case by case basis.
It is also important to distinguish between a “Case Estimate” and a “Case Reserve”. A case estimate will include the
case reserve PLUS all partial payments made to date. Thus everyone involved with claims and the interpretation of
claims data needs to clearly understand the terminology employed at the company.
Reserving persons should also be consistent in their practices. Does the company prefer to reserve conserva-
tively, or at the currently expected amount? …or will a loading factor be applied on a bulk basis for this contingency?
It will be necessary to have different considerations for short tail and long tail claims.
The table below shows typical loss development rates under short tail and long tail business respectively.
It can be seen from the above table that while short tail business such as “fire” settles more or less over three
years, it takes at least five years to reach the same point under liability business.
Equally the estimating of property or motor own damage is likely to be a lot easier than estimating loss of profits
in property accounts and bodily injury in liability accounts.
Finally it may be necessary to deal with third party claims for property damage and bodily injury, and these claims
may involve complex litigation where the outcome is difficult to predict.
Using consistent practices to arrive at a final figure for case reserves is a very challenging work.
For short tail property losses, assessing the amount of the damage is usually left to experts for the larger claims.
Loss adjusters will often be employed where the company does not have its own in-house adjusters. Their estimate,
subject to cover limits, plus foreseen expenses will usually be sufficient to calculate a first estimate.
Loss of profits may be more challenging, and it may be necessary to discuss the loss adjusters estimate in more
detail, especially where it differs from any estimate provided by the insured. But clearly the insured’s estimate is
likely to be the maximum amount likely to be paid, and a percentage of this likely over-optimistic amount may be
more realistic.
Long tail claims are more challenging. As discussed above, it is also important to be clear whether one is discussing
the challenge to predict an amount based on a short term ultimate, or a payment of the ultimate sometime in the
future.

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Many companies use injury tables based on an appreciation of recent legal awards. By identifying all the injuries
involved in an accident, and the age and income of the injured, one can calculate first estimates.
Annuities, if awarded in the local jurisdiction, are one of the most difficult challenges.
It may be prudent to assess large claims with the help of reinsurers who are likely to have more experience in these
challenging areas.
Bodily injury claims are dealt with in more detail in 4.1.2 below.
In all cases where litigation is involved, several factors will need to be taken into account:
- The period that has elapsed between the occurrence of the loss and the threatened litigation. (The longer
the period, the less likely that in fact litigation will take place.)
- The percentage possibility that the outcome of the litigation will be unfavourable.
- The ability of the reserving person to calculate the ultimate loss.
- It will be particularly important to understand the local market in which the insurer is operating. Local mar-
kets can vary enormously in terms of inflation, legal awards and legislation, and it would be dangerous to use tables
from other countries.
- It will also be important to take account of the company’s reinsurance programme for larger losses, to cal-
culate the potential recoveries from any treaties and facultative arrangements.
3.1.3. Claims reporting
Once again the important aspect of reporting is CONSISTENCY. Whether reporting internally, or to reinsurers or
to regulators or to tax authorities, the persons reading the reports will also be comparing new reports to previous
reports, and drawing conclusions. If the process is changed, then generally one needs to provide a subsequent
report using both the old and the new process so receivers of the report can appreciate in what way the figures
are changed from one process to the other. Failure to clearly explain any changes can result in misunderstandings,
accusations of “cooking the books”, and if reinsurers have doubts about the figures presented, then the result can be
much higher reinsurance premiums.
Reports also need to be CLEAR.
If claims data is being provided to an internal department or individual, such recipients may have had input into
designing the report and they may be familiar with the terminology being used. In providing claims reports to rein-
surers who may have had no input into the report design or the terminology used, it will be most important that the
report is understood in the same way that the producer of the report intended. Are claims “from the ground up”?
Are claims reported based on the gross retention of the cedant, or on the net retention? Do the claims take account
of any co-reinsurance, loss corridors or inner aggregates? Are the claims net of reinstatement premiums? Are the
claims actual or “as if”? Are the figures simply for paid claims, or do they include outstanding losses? Do they include
IBNRs?
Finally is the report comprehensive enough for purpose? In presenting bulk claims figures under a quota share
treaty to reinsurers little more than the numbers are necessary. However when reporting a cash call there may be
specific information required which is contained in the cash loss clause in the treaty wording. Losses under faculta-
tive arrangements may require even fuller documentation, and even reporting may not be enough. It may be neces-
sary to obtain reinsurers agreement to certain decisions or proposals.

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3.2. Reinsurance aspects
3.2.1. Reserving
Reinsurers are faced with many of the same challenges as insurers in the field of claims reserving, especially where
individual large losses are concerned. Depending on the expertise of the ceding company, so reinsurers may rely
more, or less, on the estimates provided to them.
They may also have the advantage of doing business with a number of companies in the same market, and will
thus have more data on losses to work with. Equally as companies in the same market will employ different reser-
ving parameters, it may be possible to grade the companies according to their reserving conservatism, and thus for
similar losses to simply apply a loading factor depending on the reserving conservatism or expertise of a particular
company.
Large individual losses may come to reinsurers for a variety of reasons. The ceding company may simply be
looking for help in resolving large losses which fall within their retention. Under proportional cessions, a large loss
may be the result of a cash call. Under facultative cessions reserving may be very similar to establishing a case re-
serve as described in the sub-section above.
Losses under non-proportional treaties may once again concern a large risk, or the assessing of numerous losses,
both large and small under an event cover.
It is important that the reinsurer appreciate the local factors – the local economy and legislation – and also any
potential currency issues depending on its own location in either a soft currency or a hard currency location. In
addition the amount the reinsurer needs to reserve will be affected by the deductible and amount of the cover, and
index, currency, reinstatement and hours clauses. Equally whether the reinsurer can influence the loss due by virtue
of a claims co-operation clause.
Bulk reserving, based on portfolio statistics will also be similar to the calculations which should also be carried out
at insurer level, and a set of examples is given in the case study in section 9 below.
The use of factors can also be applied as below.
The table below shows a claims run-off or claims development for the years 2009 to 2012. A ladder statistic is
based on underwriting years and shows the development of incurred claims for each underwriting year. Thus, for
example, at the end of the first 12 months the underwriting year 2009 showed incurred losses of $20,000. The same
underwriting year after 48 months development showed incurred losses of $60,000.
By using factors it is possible to make an estimate of what the underwriting year 2012 could look like at 48 months.
The table below shows the same ladder statistic, with the factors added.

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By dividing for example, the figure at 24 months for the year 2009 by the figure at 12 months, one gets a factor
of “2”. One can calculate this factor for all the results that are available – this shows the figures above in black. The
figures above in green represent estimates for completing the results for the underwriting years 2010 and 2011.
As 2012 is undeveloped, the figures in blue represent an estimate by taking a rough average of the figures for each
development period e.g. 24/12, and using that factor to apply to the year 2012.
The result can be seen below:
This enables the reinsurer to take a view on the ultimate results in a professional way based on a transparent pro-
cess. Once again, as stressed throughout this section, the actual results can be different, but given that an estimate
is required to complete the year end financial reports and the returns to the regulator, this process provides a way
to achieve that.
3.2.2. Claims reporting for reinsurers
Claims reporting for reinsurers requires many of the same attributes as claims report for insurers.
CONSISTENCY is very important. Whether reporting internally, or to retrocessionaires or to regulators or to tax

authorities, the persons reading the reports will also be comparing new reports to previous reports, and drawing
conclusions. If the process is changed, then generally one needs to provide a subsequent report using both the old
and the new process so receivers of the report can appreciate in what way the figures are changed from one pro-
cess to the other. Failure to clearly explain any changes can result in misunderstandings, accusations of “cooking
the books”, and if retrocessionaires have doubts about the figures presented, then the result can be much higher
retrocession costs.
Reports also need to be CLEAR.
If claims data is being provided to an internal department or individual, such recipients may have had input into
designing the report and they may be familiar with the terminology being used. In providing claims reports to re-
trocessionaires who may have had no input into the report design or the terminology used, it will be most important
that the report is understood in the same way that the producer of the report intended. Are claims “from the ground
up”? Are claims reported based on the gross retention of the reinsurer, or on its net retention? Do the claims take
account of any reinsurer share in the retrocession programme, loss corridors or inner aggregates? Are the claims
net of reinstatement premiums? Are the claims actual or “as if”? Are the figures simply for paid claims, or do they
include outstanding losses? Do they include IBNRs?

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Finally is the report comprehensive enough for purpose? In presenting bulk claims figures under a retrocession
quota share treaty to retrocessionaires little more than the numbers are necessary. However when reporting a cash
call there may be specific information required which is contained in the cash loss clause in the retrocession treaty
wording. Losses under facultative arrangements may require even fuller documentation, and even reporting may
not be enough. It may be necessary to obtain the agreement of retrocessionaires to certain decisions or proposals.

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4. DEALING WITH COMPLEX CLAIMS
Learning objective: To appreciate the factors necessary resolve complex claims. The insurance perspective, the
The reader’s attention is directed to Course 6 sections 8 and 9 where the claims process is dealt with in detail for
both property and liability claims.
Claims, like the individuals who cause them, or natural events, will happen in an infinite variety of ways and can
produce an ever changing mix of issues to be resolved.
Complexity may simply be the result of the confluence of a number of more or less complicated issues all resulting
from an event, or it may be a deliberate attempt by a party to confuse the issue and hence gain benefit.
The policy wording should always be the foundation on which the claim adjustment is built. Unfortunately where
large amounts are involved even simple words can suddenly have a variety of meanings, so even this foundation is
not always secure, but generally there is no better foundation. Then it is wise to untangle all the knots of complexity
and see how each item stands up to what was agreed at the time the policy was issued.
Given the infinite variety of possibilities, this section highlights two areas of complexity which are important to
understand.
4.1.1. Business interruption
A business Interruption or Loss of profits (BI) policy generally provides cover for loss of Gross Profit following
material damage to the property by fire or any other peril covered under a Fire and Special Perils Policy.
In addition cover is also provided for standing charges which remain during the period of interruption, and the
increased costs incurred to minimise the loss and maintain operations at the level immediately preceding the loss.
It is most important to emphasise here that cover is CONSEQUENTIAL upon material damage to the property that
is covered under the property policy. If there has been no material damage to the property covered by the property
insurance, then there can be no business interruption claim.
Many companies today seek what is called “non-damage business interruption cover (NDBI)” that is to say bu-
siness interruption cover which is not dependant on an underlying covered loss under the property policy. Such
cover is still generally difficult to obtain and can expose the insurer to a number of unexpected claims. For example,
an earthquake in Japan can result in a local factory being unable to produce cars. Thus a financing company in Ni-
geria cannot obtain the model of vehicle it needs for its customers, and, consequently it makes an NDBI claim on its
insurer.
A standard BI policy requires the ability to calculate the loss of gross profit and identify the standard charges and
increased costs to adjust the claim.
Here again complexity can be introduced to gain advantage. Conveniently all records have been destroyed by
the fire, the insured was just in the process of changing accountants and auditors who have no previous knowledge
of the business, the documentation of a large new contract has been consumed by the flames but requires large
payments of liquidated damages, or last year’s tax returns suddenly require amendment as a significant amount of
turnover was omitted from the original return.

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A certain dose of experience combined with healthy scepticism may be necessary to resolve such issues.
However a common method to adjust the loss, once clarity has been restored, is known as the “before and after”
method. This compares turnover and profits before the loss with turnover and profits after the loss to determine the
loss of gross profit.
This method is sometimes supplemented by the “bench mark” or “comparable company” method, which looks at
similar companies in the same industry, and compares their performance and results with that of the claimant. This
can give perspective on the losses being claimed, or can be useful if the claimant is a new company with little or no
historical information.
An example using the “before and after” method is given below:
DEFINITIONS:
Loss of turnover = Turnover less shortfall due to loss
Standing charges = Charges that are fixed irrespective of turnover, for example permanent staff, rent, rates, taxes,
interest.
Note: Insured standing charges must be specified in the policy wording.
Increased cost of working = additional or special expenses to stay in business after the loss.
The Rate of Gross Profit = Net Profit + Insured Standing Charges *100
Turnover
PROCESS:
1) Calculate loss of turnover

2) Calculate rate of gross profit
3) Calculate loss of profit = 1)*2)
4) Add to the loss of profit item the increased cost of working, net of any savings in expenses = the GROSS
CLAIM
5) Application of average clause or deductibles or other deductions as may be applicable = the NET CLAIM

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EXAMPLE:
It is important to understand clearly all definitions contained in the policy document. Definitions may vary slightly
from one policy to another or the insured may have purchased cover on a non-standard basis.
In the above example the definitions are included, so that the basis of the calculations is clear to all parties. As fixed
expenses are usually clearly defined in the policy, it should be the case that the insured will be familiar with these
expense items as defined in the policy and they will be readily identifiable in the insured’s accounts. But it may also
be the case that the insured only reads the insurance policy for the first time after the loss has taken place – this is
not, unfortunately, a rare occurrence.
It is also important to appreciate that the insured’s use of terminology in its accounts may vary from standard ac-
counting terminology and it will be important to be able to translate the figures as may be necessary so that the right
calculations can be made and negotiations can take place with everyone being on the same page.
4.1.2. Third party bodily injury and damage claims
Third party claims are generally more difficult to handle as there is no contract to govern the relations between the
parties. Between the insurer and the insured there is an agreed policy wording. Also the obligation of utmost good
faith is lacking and communications may be more difficult where the third party has legal counsel and perhaps other
advisers aggressively promoting the issues.

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In general liability claims are also more difficult to handle as noted below.
Third party bodily injury and damage claims can be quite complex and it is worthwhile to examine this aspect of
complex claims.
A primary set of questions to ask is:
- Did your insured owe a duty of care to the plaintiff?

- Did your insured breach that duty of care?
- Was the breach of that duty of care the cause of the third party’s injuries/damage?
- Is the third party in a position to prove the injuries/damage sustained?
If the primary set of questions can be answered, on the balance of probabilities, positively, then the next task is to
appreciate and qualify the economic damages claimed.
The economic damages claimed will usually result from certain areas of expense:
- Material damage: Damage to property – a damaged car, a damaged wall, other property loss. Such damages
can usually be expertly assessed and a view taken whether the claim is exaggerated or not.
- Medical expenses: Medical expenses may be broken down into actual medical expenses already incurred,
and an estimated cost of future medical expenses, especially if the injured party will require permanent medical
supervision or care.
Actual medical expenses can often be benchmarked against similar expenses for similar injuries to judge whether
they are reasonable or exaggerated.
Future medical expenses are much harder to assess. Severely injured claimants may improve or may deteriorate,
they may live longer or shorter lives, and it can be very difficult to reach a consensus between experts who are likely
to have differing opinions.
- Lost earnings: Like medical expenses, lost earnings can be broken down into actual lost earnings and future
lost earnings.
Actual lost earnings can be computed based on current earnings or personal income tax returns.
Future earnings can be as complex as future medical expenses. Was the claimant taking further education, what
might have been their career had the injuries not occurred? How long might they have earned a salary at their cur-
rent level? How might their salary have progressed? Such issues can be complex to resolve, and may be different
from previous problems, as each individual often has particular circumstances.
However it is important that these aspects are considered independently and a view taken.
The next step is to try to estimate the possible amount of the general damages that could be claimed. Unlike
economic damages, general damages can be very subjective and based on elements that are very difficult to judge.
Equally how a court may decide these aspects may also be open to wide interpretation depending on the abilities of
each sides’ legal counsel.
Often general damages are the result of applying a multiplier to the economic damages. The multiplier goes up as
the severity of the injuries, and the term of recovery or care, gets longer.
Another help may be to refer to lists of amounts that local courts have awarded in the recent past for different
types of injury – head injuries, upper body injuries, lower body injuries, back injury, damage to limbs, mental/psy-
chological injury.
Aspects of calculating general damages will include pain and suffering, loss of companionship, loss of enjoyment
of life, and the accompanying emotional distress and inconvenience.
Having made an assessment regarding the liability of your insured, and having put a figure on the economic and
general damages, the next step is to consider any mitigating factors such as contributory negligence of the third
party.
The above work, which may have to be carried out numerous times where more than one third party was injured
in the accident or event, will form the basis of establishing a reserve and the basis of your negotiating tactics during

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settlement negotiations and any judicial process.
Many of the reinsurer’s challenges will be similar to those faced by an insurance company.
On the facultative side the reinsurer is likely to follow a similar process to that of the insurer. The main difference
will be that the reinsurer will be relying on the documentation that has been provided by the cedant. There is unli-
kely to be any communication with the insured - the claimant - as there is no contract between the reinsurer and the
claimant, the reinsurer’s obligations and contract are with the cedant. Equally the reinsurer needs to be sensitive to
the relationship between the cedant and its insured.
Much will depend on the confidence the reinsurer has in the abilities of the cedant to investigate and adjust the
loss. Where the claim involves legal proceedings, the ability of the cedant and its legal advisers to efficiently conduct
the legal process.
Where cedants have limited abilities to investigate and adjust losses, they may even ask the reinsurer to help
them to deal with the claim and even to advise them as how best to negotiate with the claimant. This aspect of the
reinsurer helping the cedant with difficult claims may be an important reason why the cedant chose to work with the
reinsurer in the first place.
The process for dealing with the claim is nevertheless hardly different from that of an insurer.
As noted in course 6, section 3, many of the claims that a reinsurer will deal with arise under treaties.
Proportional claims are accounted for in bulk in the quarterly or half yearly accounts. Where a cash loss is re-
quested the review of the claim will be similar to the processes already described in course 6, sections 8 and 9.
Non-proportional claims will follow the same pattern. Under per risk covers a single loss is very similar to ad-
justing a loss under facultative reinsurances as noted above. However where a treaty programme is involved it is
important that the cedant has allocated the loss correctly between all the different covers – an example of this type
of allocation is given in the case study at section 6.1 below. Catastrophe losses are only more complex in that they
can involve large numbers of losses and all these losses may need to be individually allocated to the treaties in the
reinsurance programme, depending on size and original allocation, thus the task is much bigger and the possibility
of errors greater. Nevertheless the process is the same as given in the case study in section 6.1 below.
In addition to the elements noted above, there are however several issues which are of particular concern to
reinsurers, namely sanctions, increased complexity, the timing of notifications, the additional clauses in reinsurance
contracts and the need to rely on the abilities of the ceding company.
4.2.1. Sanctions
Sanctions are measures introduced by a country or international organisation such as the United Nations against
countries, companies and individuals for political reasons, either unilaterally or multilaterally. Sanctions can vary in
scope. Some may be broad based, applying to countries, while others may be targeted on specific individuals and
companies. Given the variety of sanctions and variation in scope for each sanction, reference needs to be made to
various lists or information available on various government sites. For example, the US Office of Foreign Assets
Control (OFAC) hosts a site that provides information on US sanctions. The EU imposes sanctions and embargos, the
UK has a list of financial sanctions targets in the UK etc.
The number of individuals and companies can run into the thousands, and as individuals and companies can easily
move internationally, they can turn up anywhere, especially where they hope to be the least expected.
While sanctions apply equally to insurance companies, most insurance companies are locally based, and they
have the opportunity to review each policy before they issue it. Reinsurers, on the other hand, receive a lot of their

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business in bulk, for example, “all business written in the fire department”, and they can thus have little, or no idea,
about the identity of all the insured persons and companies. Equally claims are often deducted in bulk in the quar-
terly accounts of proportional treaties, thus it may happen that a reinsurer is in breach of the sanctions requirements
imposed upon it without it even knowing.
Some reinsurers rely on sanctions clauses to have the ability to refuse payment of claims to sanctioned parties,
while others also have departments to constantly review the sanctions in force and to audit their business as best
they can. As with many areas of compliance today, there is no fool-proof way to prevent infringement, but by establi-
shing robust internal procedures, many reinsurance companies hope to have the defence “that they did everything
they could” to comply with the sanctions in force.
4.2.2. Increased complexity
Many local insurers need only be familiar with, and comply with, local laws, regulations and controls. Reinsu-
rers, on the other hand, often transact business internationally, and they thus face all the challenges of languages,
customs, laws, and religions applying locally in each country where they do business. In addition they must also be
fully conversant with all these issues in the country where they are established, and do their best to avoid conflict
between their local laws and the laws under which their clients operate.
Thus a reinsurer established in Switzerland is subject to Swiss law and controls. It may wish to do business in
Kenya. It thus needs to understand and comply with the laws and regulations in Kenya. However it may insist that
reinsurance wordings are subject to English law as there is a lot of precedent and experience in dealing with inter-
national reinsurance issues under English law. Perhaps after much discussion the Kenyan company agrees that the
reinsurance wording can be subject to English law. It may then be necessary to employ legal experts in Switzerland,
the UK and Kenya to ensure that, as far as possible, the transaction is compliant with all three jurisdictions. Equally
three legal opinions may be necessary to adjust any large claims which arise.
Many ceding companies and reinsurers fail to properly address these issues when the contract is signed, leaving
all the problems to be sorted by claims personnel when a claim arises and a number of complex issues result.
4.2.3. The timing of claims notifications
If a contract is based on claims made during the period of the contract, then a reinsurer is at least legally protected
if a claim advice is received after the contract has expired. However if claims are on a losses occurring basis it may
be months, years or even much longer before the reinsurer receives details of a loss.
Countries which have been the subject of political turmoil many take years to recover the infrastructure necessary
to pursue claims and the courts may be clogged up with claims for long periods before issues can be resolved and
claim amounts properly calculated.
A court case which had a 95% certainty of being judged in an insurer’s favour may be decided in favour of a third
party claimant. A conservative reserve of $100,000 becomes a loss of $1,000,000 and then, after a period of years,
it is necessary to inform reinsurers of a loss.
Where ceding companies have acted professionally and in good faith, reinsurers may be contractually liable to pay
their share in the loss.
By not working, or by choosing to work in less stable environments, or by not writing or by writing business that
can be subject to very long term exposures reinsurers can choose the general level of risk they wish to operate in.
There is no easy solution to such problems except avoiding such business in the first place.

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4.2.4. The additional clauses in reinsurance contracts
Unlike insurance contracts, many non-proportional reinsurance contracts contain clauses such as reinstatement
clauses, hours clauses, index clauses, claim co-operation clauses and currency clauses. All these clauses are de-
signed to limit exposure to the reinsurer, or to ensure that both parties to the contract pay their fair share of in-
creased costs following developments that neither party could have properly foreseen at the time the business was
written.
Certain clauses in a reinsurance contract can have a material impact on the amount of the claim the reinsurer
needs to pay, and it is important to understand how to adjust a claim taking account of these clauses. These clauses
are all dealt with in detail in course 6.
4.2.5. The abilities of the ceding company
Generally, even if there is a claims co-operation clause, the reinsurer will need to place a lot of confidence in the
abilities of the ceding company. The reinsurer is unlikely to have direct contact with either the insured or the insu-
rer’s advisers, such as their legal counsel or their claims adjusters. The reinsurer will rely on written reports, and for
more complex losses, perhaps involving many insureds, it may be difficult to make a wholly independent judgement
of the adequacy, or otherwise, of the reserves.
This coupled with any delays in notification can result in a considerable volatility in the reserve amounts set up by
reinsurers, and a similar problem for retrocessionaires.
For these reasons reinsurers and retrocessionaires needs to be particularly careful when they set their own re-
serves.

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5. RELATED COMPLEX CLAIMS ISSUES
Learning objective: To be familiar with related complex claims issues such as those arising in alternative risk trans-
fer structures and insurance linked securities.
5.1. Alternative risk transfer claims
Non-traditional covers are a constantly changing animal and hence dealing with claims is likely to be very different
from one structure to another.
The main difference between traditional and non-traditional covers is that a traditional cover usually includes full
risk transfer while non-traditional covers rather provide risk financing either through pre-funding or post-funding.
Non-traditional covers tend to be tailored for a particular challenge of a particular insured or cedant. It may be that a
large insured seeks a structured insurance cover, or it may be a large insured seeking a structured solution through
its captive. A certain expertise is thus necessary to properly understand the implications of a non-traditional pro-
duct, why it was structured the way it was, and what need it is fulfilling for the ceding company.
Many non-traditional structures take the form of low layer multi-year, multi-line covers, designed largely to enable
the cedant to “risk finance” its risks, and to have sufficient liquidity to face an unexpected frequency of losses.
Below is a view of a portfolio of business. It covers a number of traditional classes and also a newer and more difficult
to assess class – cyber.
A portfolio view
The desire of the cedant in this case is to pool its low layer covers and the risk premium for those layers and, by thus
reducing the volatility of the whole, to hope that reinsurers will be willing to cover the additional risk of cyber.
The cedant relies on the fact that while say the annual probability of loss in each section is 50%, the overall proba-
bility for all sections combined, over the extended period of five years, will be less, and often there will be extensive
modelling to test these assumptions.

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The reinsurer, also through modelling, will hope that the combination of annual and term aggregates and the expec-
ted premium will enable it to make a profit.
Each class of business will have its distinct form of cover. This may be at the standard cover terms of the (re)insurer,
or, more likely, the cover will be in manuscript form, that is to say that the cover has been specifically written to the
specifications of the (re)insured.
For this reason, if for no other, it is most important that the claims person read the document carefully to be sure, in
the event of a claim, that the document provides the cover being claimed against. In addition if there are individual
class limits, and annual and term aggregates, it will be important to ensure that any payment is made subject to those
aggregates.
As a first step it is important to understand the financial matrix, and the best way to do this is to make a simple sum-
mary of the cover, as below:
This makes the financial matrix much easier to understand.
For example, if there were to be a full marine hull loss in year 1 – and this was the first loss to be advised to the cover
in that year – of $2.5m to the cover this consumes both the annual limit of the class (F7), and the annual aggregate
limit (F3). This means there is no cover for any other loss from any section for that year.
If there were an aviation loss in year 2 – and this was the first loss to be advised to the cover in that year – of $2m
to the cover, then, if the loss was covered by the contract, $1.5 would be payable to the claimant (F9) and $1m cover
would be left available in year 2 (F3-F9).
If by the end of year 4 $9m had been consumed in losses, then only $1m of cover would be left available in year 5
(G3-$9m).
Thus if a claim was received by the claim person responsible for a property loss in year 3 in the amount of $3.5m
from the ground up, the steps would be as follows (note: this is the first loss advice of the year in question, and the
term aggregate is still at $5m):
o Is the claim covered under the wording of the relevant section? If yes continue, if no decline. Yes it is cove-
red.
o Does the claim exceed the deductible – for example $2m (E5) under section 1, property? If yes then conti-
nue, if no decline. Yes the amount exceeds the deductible by $1.5m ($3.5m-E5).
o Does the claim exceed the cover limit? If so reduce the eligible amount to that limit. Yes it does exceed the
limit by $500,000. Eligible amount reduced to $1m.
o Has any part of the annual cover limit been used up? If so, is there sufficient balance to pay all or part of this
eligible amount? If not decline payment. If all or part of the balance is available, move to the next step. Yes,
there is sufficient cover to move to the next step.
o Has any part of the term cover limit been used up? If so, is there sufficient balance to pay all or part of this
eligible amount? If not decline payment. Yes part of the balance is available, thus, subject to any other cover
terms, the amount claimed may be paid to the claimant.
The other aspects which may need attention when processing alternative transfer claims are the collateral account

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conditions or the wording of the experience account.
The collateral account:
An example of a collateral wording incorporated in a reinsurance treaty could be as follows:
Until such time as Reinsurer determines that there is no further liability under this Reinsurance, Cedant shall provide
to Reinsurer, no later than sixty (60) days after the close of each calendar quarter a statement of the aggregate value
of the Collateral Assets held in the Collateral Account at the Calculation Date (the “Deposit Value”).
In the event that the Deposit Value is less than the Required Amount, Reinsurer shall issue a notice which shall state
the amount of the deficit, in which case Cedant shall be required to deposit Collateral Assets to a value not less than
the deficit in order to restore the balance to not less than the Required Amount within sixty (60) days of the relevant
Calculation Date; or
In the event that the Deposit Value exceeds the Required Amount, Reinsurer shall issue a notice which shall state the
amount of such excess, in which case Cedant shall be entitled, at its discretion to withdraw Collateral Assets from the
Collateral Account in an amount not exceeding the excess.
Depending on the relationship with the client, the perceived client credit risk and the amount of the payment, it may
be necessary to review the amount in the collateral account prior to further payment of any claims. For example, if
the claim payment is $2.5m, and the collateral account only contains $100,000, the claim person may wish to see
more provision in the collateral account before making any further payments. The ability of the claim person to insist
on this will depend on the rights given to each party in the contract wording, but the claim person needs to be aware
of the collateral feature in the wording, if indeed there is one, to ensure credit risk is not unnecessarily increased by
making a further payment to the client if this risk can be managed.
The experience account:
An example of an experience account wording incorporated in a reinsurance treaty could be as follows:
Notional Experience Account
During the Term of this Reinsurance, the Reinsurer shall record the information required to calculate the balance of
the Notional Experience Account.
The Notional Experience Account Balance as of any Calculation Date shall be as follows:
X=A+B+C-D
where:
X = Notional Experience Account Balance as of any Calculation Date
A = the balance (whether positive or negative) of the Notional Experience Account as of the previous Calculation Date
B = 95% of any Premium received by the Reinsurer since the previous Calculation Date
C = the interest calculated in respect of the Notional Experience Account balance from the previous Calculation Date
until the current Calculation Date (at the rate agreed herein e.g. LIBOR minus 20 basis points if balance positive and
LIBOR plus 50 basis points if balance negative)
D = Losses paid by the Reinsurer to the Cedant since the previous Calculation Date.
Within 15 days of the end of each Quarter the Reinsurer shall calculate the Notional Experience Account and provide
report to Cedant (in an agreed format).
The accounting aspects of maintaining an experience account have been discussed in course 5, however it can be
the case that the detail and reporting of the account to the client are the responsibility of the claims department.
Practice in companies varies on this aspect.

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As the balance in the account will change on the value date of any claims payment, it is important that the experience
account is revised to reflect this. In the above wording, a positive balance in the experience account attracts an in-
terest rate of LIBOR minus 20 basis points, while a negative balance attracts an interest rate of LIBOR plus 50 basis
points. Where large amounts are involved the application of the correct rate of interest can be important.
5.2. Insurance linked securities (ILS)
For example, Pylon II Capital Ltd was an ILS transaction that protected a subsidiary of Electricté de France in the
event of windstorm damage up to an amount of EUR 150m, should the loss occur within a defined time period.
The transaction was based on parametric triggers with the data provided by a subsidiary of Meteo-France, and EQE-
CAT acting as the calculation and reset agent. The model calculated an index value based on qualifying wind speeds
at agreed locations.
There were two classes of notes, Class A and Class B. Class A covered an index value of 1,050 excess of an index
value of 777, and Class B covered an index value of 777 excess of 420. The Class A notes also acted as a drop down
reinstatement for Class B notes, should they suffer a total or partial loss.
We have discussed drop down features in course 2 – Intermediate Reinsurance – under the section “Other Types of
Reinsurance Cover”.
If an official and well known modeller such as EQECAT has been agreed as the calculation and reset agent, once a
loss has been declared and the index values calculated, there will be no requirement to recheck the index values.
Equally in a financial transaction the limit of cover has already been collateralised – that is to say investors have
already deposited the full amount of the liability with the security issuer – and there is thus equally no possibility to
review the conditions of the transaction before being debited for the loss.
The notion of “claims adjustment”, of reviewing the claim before payment, does not exist under a financial transac-
tion. The money becomes due once an event as defined has occurred – for example – in the above cover, the class B
notes are exposed if the index exceeds 420.
When (re)insurers became involved in protecting investors who backed film projects this important difference
between adjusting a (re)insurance loss and having an obligation to simply pay under a financial transaction, was not
understood by the contracting parties and led to a number of court cases to resolve the issues.

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6. CATASTROPHE CLAIMS MANAGEMENT
Learning objective: To appreciate catastrophe claims management. The insurance perspective, the reinsurance
perspective.
What is a catastrophe?
As has been noted in previous courses, there is usually a “two risk” warranty in a catastrophe treaty, to ensure that
a cedant cannot claim for a loss or event under its catastrophe treaty unless two or more risks are involved.
Thus a catastrophe claim must involve at least two risks. Generally catastrophe claims involve many more than just
two risks and the challenge is to be able to handle a large number of losses arising out of one event.
This challenge may be twofold.
Firstly there is the aspect of being able to process large numbers of claims. The second point is to be able to ac-
tually function after a major catastrophe when that catastrophe may have destroyed the (re)insurer’s premises and
employees may be scattered over a wide area.
Sometimes it is difficult to imagine the scope of a catastrophe. Below are two descriptions of catastrophes quoted
from Wikipedia.
As quoted in Wikipedia:
Quote: “….the Tangshan earthquake also known as the Great Tangshan earthquake, was a natural disaster that
occurred on July 28, 1976. It is believed to be the largest earthquake of the 20th century by death toll. The epicenter
of the earthquake was near Tangshan in Hebei, People’s Republic of China, an industrial city with approximately one
million inhabitants. The number of deaths initially reported by the Chinese government was 655,000, but this number
has since been stated to be around 240,000 to 255,000. Another report indicates that the actual death toll was much
higher, at approximately 650,000, and explains that the lower estimates are limited to Tangshan and exclude fatalities
in the densely populated surrounding areas. A further 164,000 people were recorded as being severely injured
The earthquake hit in the early morning and lasted 14 to 16 seconds. Chinese government official sources state a
magnitude of 7.8 on the Richter magnitude scale, though some sources listed it as high as 8.2.
It was followed by a major 7.1 magnitude aftershock some 16 hours later, increasing the death toll to over 255,000.”
Unquote.
On 11th September 2001 the September 11 attacks (also referred to as 9/11) occurred.
As quoted in Wikipedia:
Quote “(they) were a series of four coordinated terrorist attacks by the Islamic terrorist group al-Qaeda on the
United States on the morning of Tuesday, September 11, 2001. The attacks killed 2,996 people, injured over 6,000
others, and caused at least $10 billion in property and infrastructure damage and $3 trillion in total costs.
Four passenger airliners operated by two major U.S. passenger air carriers (United Airlines and American Air-
lines)—all of which departed from airports in the northeastern United States bound for California—were hijacked by
19 al-Qaeda terrorists. Two of the planes, American Airlines Flight 11 and United Airlines Flight 175, were crashed into
the North and South towers, respectively, of the World Trade Center complex in New York City. Within an hour and 42
minutes, both 110-story towers collapsed, with debris and the resulting fires causing partial or complete collapse of all
other buildings in the World Trade Center complex, including the 47-story 7 World Trade Center tower, as well as signi-
ficant damage to ten other large surrounding structures. A third plane, American Airlines Flight 77, was crashed into
the Pentagon (the headquarters of the United States Department of Defense) in Arlington County, Virginia, leading to
a partial collapse of the building’s western side. The fourth plane, United Airlines Flight 93, initially was steered toward
Washington, D.C., but crashed into a field in Stonycreek Township near Shanksville, Pennsylvania, after its passengers
tried to overcome the hijackers. It was the deadliest incident for firefighters and law enforcement officers in the history
of the United States, with 343 and 72 killed respectively.” Unquote.

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Such events are very hard to imagine before they occur, and just as hard to believe after they have occurred. Yet
the (re)insurance industry has to deal with catastrophes when they do happen. Catastrophic events have occurred
before 1976, they have occurred after 2001, and will occur in the future.
The September 11 attacks received a lot of publicity from a number of (re)insurance angles, particularly some high
profile court cases around policy wordings which had not been finalised and agreed at the time of the loss. Equally
the right of insureds to claim more than their loss and to receive large damages from those they claim were res-
ponsible for the devastating scope of the loss. These cases were still continuing more than ten years after the event.
It was felt necessary following the event to protect some of the world’s major airlines from collapse, something
quite unprecedented. Equally the accumulation between disparate classes of business, never imagined before, be-
came evident following this tragedy.
These can range from the more specialised classes such as fine art, to the problem of chronic disease such as lung
damage or cancers developing many years later from the environmental hazards unleashed by the disaster.
However the main classes of property and liability still made up the majority of insured losses, with property and
business interruption, including a small amount of aviation hull making up 65% of the overall insured losses, while
liability made up nearly 30%. Property was roughly divided 50% property and 50% business interruption, which
shows that business interruption becomes a very important part of modern day losses.
The consequences of a catastrophe for a (re)insurer.
From a claims management perspective, the major issue here is the sheer volume of claims to be processed and the
difficulties which will have to be overcome. External loss adjusters will be overwhelmed, if prior arrangements with
a loss adjusting firm have not been organised, it may be impossible to get immediate service.
All firms involved with supplying preventive measures – fencing off damaged structures, protecting damaged
structures from the elements – all such firms will be swamped by demand. Builders and building materials will be-
come unavailable, and doubtless with such high demand prices will soar. In smaller economies this might even have
an effect on the rate of exchange. Where goods need to be imported bottlenecks could quickly occur around ports
and customs warehouses.
Disaster planning.
It is in such circumstances that (re)insurance companies who have prepared for disaster will be better able to ser-
vice their clients than those who have not undertaken any effective planning prior to such events.
Even by imagining much smaller events, it may be possible to identify and make prior arrangements with loss ad-
justers, builders and suppliers outside the major centres, or at least have identified sources of services and supplies,
so that a plan of action and contact can be implemented well before competitors have to do the same thing.
Equally the ability to assemble the necessary company employees can be a challenge if the usual lines of communi-
cation do not function, if even the company premises have been damaged, or there is no power for lighting, heating
and computers.
There will also be issues such as the greater liquidity necessary to provide valid claimants with initial payments,
and perhaps even a process so that valid claimants can actually receive the money. The process of even selling in-
vestments to create additional liquidity may be impaired by the disaster. Again detailed disaster planning can help to
overcome these difficulties if, when, it becomes necessary to put such plans into effect.
A disaster recovery plan for a (re)insurance company is not only a plan that enables the company to overcome
disaster and recover, but it must also be a plan of how, at the same time, to assist and help clients to overcome and
recover from their own personal disaster which happens at the same time.
An effective disaster plan will be a documented plan outlining all the processes which need to take place and pro-
viding instructions to key members of staff to effectively respond to sudden and unforeseen events. Encouraging
clients to undertake the same process can only help should disaster occur.

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Once the claims process is underway, and claims are being adjusted and settled, another important process is to
be able to make the necessary recoveries from reinsurers. An inefficient or ill-prepared process can result not only
in an impaired flow of needed cash from reinsurers, but also “claim leakage”, the result that some claims are never
properly allocated and the appropriate recoveries made from reinsurers/retrocessionaires.
The steps to an effective disaster plan will include:
1. Identifying the disaster
It is important to review the likely outcomes of different disaster scenarios. Would a man-made disaster
such as a terrorist attack result in similar claims management requirements as a natural disaster like an ear-
thquake or a flood?
2. Commitment from senior executives
As it is likely that leadership at the highest level will be necessary in times of disaster, it is essential to have
commitment from senior executives to any disaster plan.
3. Create a group to put the plan together and ensure its effective implementation
This may be a group or a sub-committee to advise senior executives or the board. It may be a group with
delegated powers to fully implement the plan it creates. It will need to include key area representation, such
as IT and operations. If unions are represented in the company, it should include a union representative and
members of staff who may appreciate the challenges of beings summoned from outlying areas with little or
no public transport.
4. Risk assessment and disaster heat maps
The risk assessment in this instance will be complex as it is not just the situation of the (re)insurance com-
pany itself, but also the consequences for clients – after all the purpose here is to be able to properly service
the large numbers of claims expected – and to do this effectively one needs to appreciate the client’s position
as well.
By creating/obtaining a disaster heat map one can assess areas likely to be affected, and areas where reco-
very resources may still be available. This may help to match needs with likely available resources.
5. Priorities
It will be important to understand priorities. There is little result if one has all the resources to adjust claims,
but no liquidity to pay them. Equally the ability to work from home will be of little benefit if there is no power.
Often in the initial hours after a major disaster mobile telephones can be blocked, so that the bands can be
free for use by the government recovery services, or to hinder further terrorist activity. Understanding the
priorities and critical systems that will need to function in such situation will be key to any effective plan.
6. Solutions and alternatives
Having prioritised the resources necessary to recover from various disaster scenarios, it is necessary to
understand how those resources can be assembled and deployed. If no power is available, is it possible to
use a generator? If it is possible to use a generator, how long might it function if there is no fuel? Would it be
a good idea to pool resources with competitors, so that inspectors/adjusters can cover an area, rather than
having to travel, perhaps under very difficult conditions, from one area to another just to service the clients
of one insurance company? Could a bus sent to one area collect employees for a number of companies? Could
another (re)insurer in another location or country provide facilities for employees of the company, so that
they could service clients remotely? What might be other strategies/alternatives? Is it necessary to enter into
prior written agreements to secure such facilities?
7. Collection of information
Having identified priorities and potential solutions, the next step is to collect the information necessary to
carry out operations. Essential will be lists of employees and how best to contact them, lists of clients and
how best to contact them, details of all policies and availability of computer hardware, on-site and off-site
locations, available back-ups etc.

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8. Producing the plan
The next step is to produce the plan, which will set out all the issues identified, and the resources and proce-
dures necessary to recover from the various disasters identified and to deploy an effective claims service.
This plan is likely to go through various management assessment and approval processes, but it will certainly
be an excellent document to focus attention on this important issue and collect useful opinions from a num-
ber of different management and employee levels.
9. Testing
It will then be necessary to test the plan, especially the feasibility of various performance criteria and the
smooth fitting together of all the various parts of the puzzle. Where the testing fails, it will be necessary to
modify the plan. Testing will also help to evaluate the training needs of those who will need to implement
the plan. Where possible it will also be good to test the plan “live” as if a particular disaster had happened to
understand what problems may arise under a “real life” scenario.
Managing a catastrophe claim.
While volume is a challenge, the process is the same as adjusting a single loss, it just has to be repeated a large
number of times.
An important aspect of catastrophe claims management is to be able to identify those treaties and facultative
contracts which will cover the loss(es) and to properly distribute the loss(es) to those covers to ensure optimum
recoveries.
What is known as “claims leakage” is a common problem in many insurance companies, where the claims/accoun-
ting personnel fail to properly make reinsurance recoveries, and this puts stress on the company’s liquidity and
increases unnecessarily the retained loss.
CASE STUDY – Distributing claims through a treaty programme.
In the Intrepid Insurance Company Mrs. Montz is responsible to ensure that risks are properly distributed and
losses properly collected over the company’s reinsurance programme.
The Intrepid have a fairly classical reinsurance programme for their industrial fire business as follows:
1. 60% quota share treaty and gross retention of $1,000,000. Cash loss clause active when claims to
treaty exceed $200,000.
2. 5 line 1st surplus treaty. Cash loss clause active when claims to treaty exceed $200,000.
3. 10 line 2nd surplus treaty. Cash loss clause active when claims to treaty exceed $200,000.
4. 1st layer per risk excess of loss treaty on their net retention of $100,000 xs $100,000 with a rate
of 0.25% of GNPI and 2 reinstatements 100% as to time, pro-rata as to amount. Minimum & deposit premium
payable at 1st January (M&D) at 80%.
5. 2nd layer per risk excess of loss treaty on their net retention of $200,000 xs $200,000 with a rate
of 0.3% of GNPI and 1 reinstatement 100% as to time, pro-rata as to amount. Minimum & deposit premium
payable at 1st January (M&D) at 80%.
6. A 1st layer catastrophe excess of loss cover for $800,000 xs $200,000 with a rate of 1.5% of GNPI.
Minimum & deposit premium payable at 1st January (M&D) at 80%.
7. A 2nd layer catastrophe excess of loss cover for $2,000,000 xs $1,000,000 with a rate of 1% of
GNPI. Minimum & deposit premium payable at 1st January (M&D) at 80%.

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8. Estimated GNPI is $26,000,000.
The week of 8th March is an exceptional week for Mrs. Montz as she has 6 new risks to add to the industrial
portfolio, one major fire involving a large client and, just at the end of the week, a major tornado hits five of
the company’s risks.
a) Risk distribution through a reinsurance programme.
It is very important to keep in mind that as regards proportional programmes, the distribution of a claim through
the programme IS BASED ON THE DISTRIBUTION OF THE ORIGINAL RISK through the programme. It is thus vitual
to understand the process of risk distribution.
The 6 new risks
The six new risks are the following:
Mrs. Montz wants first to get an overview of the reinsurance programme in her mind, so she sets out the basic
information on a simple spread sheet as follows:
The above gives a simple overview of the different covers and provides some basic information needed to distri-
bute risks and losses between the different treaties.

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Mrs. Montz uses this overview to distribute the 6 new risks as follows:
The risks are listed in column B and the sums insured in column D.
Mrs. Montz starts by distributing the sums insured. Thus, for example, B17 is the risk “The repro oil exploration
co”. The first $1,000,000 is ceded to the quota share treaty, divided 40% retained net by Intrepid and 60% ceded to
quota share reinsurers. The next $5,000,000 of sum insured is ceded to the 1st surplus treaty reinsurers, and the
next $10,000,000 of sum insured is ceded to the 2nd surplus reinsurers. At this point the automatic treaty capacity
is exhausted and Intrepid have the option to retain the remaining $3,270,000 or to cede it by way of facultative rein-
surance. In this case Intrepid decide to cede it by way of facultative reinsurance.
Mrs. Montz can now calculate the percentage of the risk ceded to each reinsurance capacity, and the result is as
follows:
Intrepid net retention = 2%

Quota share reinsurers = 3%
1st surplus reinsurers = 26%
2nd surplus reinsurers = 52%
Facultative reinsurers = 17%
Mrs. Montz also includes a column K on her spreadsheet to double check her figures by calculating the totals a
second time to minimize errors.
Once Mrs. Montz knows the distribution of the risk percentage-wise, she can easily distribute the premium accor-
ding to these percentages, and eventually any claims which might occur.
The premium for “The repro oil exploration co” risk is set out and distributed in line 19.
The premiums for all the risks ceded to the various treaties during a quarter would be totaled and included in the
quarterly accounts sent to the respective reinsurers.
b) Collection of losses – A single risk.
The major fire
As noted above, once a risk has been distributed between the various treaties and allocated percentage-wise,
premiums and losses are distributed according to those percentages.
This case study tries to reflect an actual period in the life of an insurance company. It is unlikely that a risk which
has just been accepted would immediately have a claim in the first week. It is possible, but unlikely.
Thus this major fire occurs to a risk which has already been accepted previously by Intrepid and it is the job of Mrs.
Montz to allocate the claim between the various treaties which cover the loss in Intrepid’s reinsurance programme.

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Mrs. Montz will thus need to identify how the risk was ceded through the reinsurance programme, so that she can
properly allocate the loss.
This claim is a major fire at Lark’s paint factory. The loss amount is $17,565,350 and one of Mrs. Montz’s tasks is to
distribute and account for the loss.
Based on the spread sheet she has already prepared to distribute the premium for this risk, Mrs. Montz is easily
able to distribute the loss as follows:
She can immediately see that the loss to the treaty cessions exceeds $200,000 and that cash loss requests need
to be sent out as soon as possible to reinsurers. She will need to liaise with the claims department to ensure that the
cash loss request includes the necessary documentation to enable reinsurers to respond quickly.
Intrepid’s net retained loss in this case is $319,370, so it is also necessary to look to Intrepid’s excess of loss pro-
gramme for recoveries as well.
Mrs. Montz thus continues with her calculations as follows:
Having calculated the net loss to Intrepid, Mrs. Montz now needs to calculate the recoveries under the 1st and 2nd
layer per risk covers, and the reinstatement premiums due to reinsurers.
The 1st layer is a full loss, thus the claim recovery is $100,000. As the reinstatement premium is 100% as to time
and pro-rata as to amount, and the loss is a total loss, the minimum and deposit premium is again payable. Mrs.
Montz has already calculated this in her first simple spreadsheet laying out the basics of the reinsurance structure,
thus she now reduces the recovery due with the reinstatement premium leaving a net amount to collect of $48,000.
She goes through the same process for the 2nd layer, calculating a net amount due from reinsurers of $82,127.
It should be noted that the reinstatement premium has been based on the minimum and deposit premium and thus
will need to be adjusted once the final GNPI for the year is known.
c) Collecting losses under a catastrophe scenario.
The tornado
In this example we have an event, a catastrophe event, which involves two or more risks.
Essentially the process is the same as for one risk, except the process is multiplied by the number of risks involved.
THE IMPORTANT POINT TO NOTE is that in addition to the process for a single risk, the overall loss also needs to
be ceded to the catastrophe treaty. This point is highlighted below.

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At the end of the week there is a severe but localized tornado which causes damage to five risks insured by Intrepid.
Once again Mrs. Montz has to refer back to her spreadsheet to see how the losses were ceded to the reinsurance
programme. She then enters the losses and distributes the loss according to the same percentages as the risks were
ceded, as follows:
Day’s super market (B14) is the largest loss. The original risk was ceded 23% to the quota share (split 9% net
retention of Intrepid and 14% ceded to quota share reinsurers) and 77% to the surplus treaty. Thus the net loss to
Intrepid is $87,356 (F16), the loss to quota share reinsurers is $131,034 (G16) and the loss to the 1st surplus treaty
is $731,609 (H16).
(i) Recoveries from the proportional programme.
A similar calculation and process is carried out for all risks, so that total losses can be distributed. In this case the
total net loss to Intrepid is $269,276 (F18), the total loss to quota share reinsurers is $409,914 and to the 1st surplus
reinsurers $1,032,809.
Once again it may be possible to invoke the cash loss clause in the proportional treaty wordings (if they cover both
per risk losses and per event losses), in which case Mrs. Montz will again need to liaise with the claims department,
so that the appropriate information can be sent to reinsurers with the cash loss requests.
(ii) Recoveries from the non-proportional programme.
The next process is to review the non-proportional treaties which protect Intrepid’s net retention.
i. The per risk programme.
As there is no individual risk loss exceeding $100,000, it will not be possible to make any claims on
the per risk protections.
ii. The catastrophe programme
This is the additional aspect which needs to be considered where a catastrophe has occurred. Once
any recoveries have been made from the per risk programme it is necessary to calculate the net loss
to the reinsured – in this case Intrepid – and to see if this net loss exceeds the deductible of the ca-
tastrophe treaty.
In this case there has been an “event” loss which exceeds the deductible of the 1st layer catastrophe
cover, thus a claim can be made on this treaty.

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Mrs. Montz thus completes her calculations in this respect as follows:
She finalizes her calculations by reducing the net loss to Intrepid by the recovery from the 1st layer
catastrophe cover. As this cover does not have any reinstatements, there is no reinstatement calcula-
tion to make. However Intrepid now only have partial cover remaining under their 1st layer catastrophe
treaty should a further event occur.
Just as the disaster recovery plan is designed to put the company in a position to provide a full claims
service to its clients (doubtless amongst other necessary services), so it is important that sufficient
claims/accounting staff are familiar with the reinsurance programme of the company – in its entirety
– so that effective and full recoveries can be made. Performing also a live test run in this area will
doubtless prove of advantage.
Local reinsurers, will, like local insurance companies, have to face the full brunt of the disaster. They may well be
faced with the same issues of having to effect a disaster recovery plan to be able to provide a service to their clients
and the need to review their retrocession programme to clearly understand how optimum recoveries can be made.
If there are any claims co-operation or claim advice clauses it will be particularly important that these clauses are
properly applied. It will also be good to review proportional treaties for any cash loss clauses to be clear at what level
cash losses can be made, and the conditions which it is necessary to fulfil.
For example, the cash loss clause might state that the cedant can make a cash call on the reinsurer (that is to say
the cedant need not wait to account for the loss in the next quarterly or half-yearly account, but can require imme-
diate payment of the loss) if the loss to the treaty exceeds $100,000 for 100% of the treaty. The clause might also
stipulate that certain documentation is required to prove the loss falls within the treaty, for example, a copy of the
policy, proof of cession, and a copy of the claim form or the adjusters report. Thus if there is a claim for $200,000 for
100% of the treaty, the cedant can make a cash loss, and by providing the necessary documentation, it can demand
immediate payment of the reinsurer’s share in the loss.
Clearly if one can encourage the ceding companies to give as much early information as possible, one can try to
effect retrocession recoveries before all reinsurers and retrocessionaires become clogged with requests. It is cer-
tainly a situation where the “early bird catches the worms”.
As already noted above, both local reinsurers and reinsurers elsewhere will be largely reliant on the capabilities
and experience of the ceding companies to provide the necessary information for the losses to be adjusted and
properly allocated to the treaties. However where reinsurers may be on the same risk through various local ceding

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companies, it may make sense to see how adjusting such losses could be made more efficient by allocating responsi-
bilities to one of the local companies, thus leaving the others more resources to service other clients, and perhaps
take over the investigation of another large market loss.
Doubtless offering the reinsurers/retrocessionaires resources to the client at a time when the client’s resources
are fully stretched can only help to bind the relationship into the future.

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7. INTERNATIONAL CLAIMS AND LITIGATION
ASPECTS
Learning objective: To be familiar with international claims and litigation aspects. The insurance perspective, the
The process of handling international claims is very similar in many aspects to the processing of local claims. The
need to obtain a claim form, to check if the risk is covered by an identifiable policy, if the claim falls within that policy
and if there are any excesses or other limitations to a payment up to the limit of the policy all need to be addressed.
However because the claim is not local, there will be additional challenges, namely sanctions, issues around lan-
guage, the rule of law, conflict of law, and the potential credit risk when using local agents or companies have been
used to front the business.
Finally there can be special circumstances, some of which are noted below. A number of these aspects will apply to
both insurance and reinsurance companies alike.
Sanctions.
As has been discussed in section 4 above, sanctions can be a very important aspect of adjusting claims at an interna-
tional level. Sanctioned individuals may hide behind companies in areas where it is least expected they will surface.
Sometimes it is very difficult to identify all real shareholders in a company or all the actual owners of a ship. Failure
to apply sanctions can also result in severe penalties for the (re)insurer. Sanctions are discussed more fully in section
4 above.
Issues around language.
Another important issue may be language. Generally any court proceedings and associated documents have to be
presented in the local language, and this may involve costly translation of policies and other contracts, not only for
local legal consumption, but then all documents emanating locally from a dispute may then need translating into the
language of the (re)insurer involved in the dispute in another country.
Rule of law.
In countries where the court system can be influenced (however illegal or improper this may be) or helping a forei-
gner can result in being sent to prison, it will clearly be a significant challenge to dispute a claim or to try to obtain
reliable local information. Equally being obliged to enter war zones to adjust claims can be very challenging. Any at-
tempt to bribe or otherwise benefit local officials to “ease” the claims process will be an illegal act in many countries
where the liable (re)insurer is established.
Conflict of laws.
There may also be a conflict of laws between the country of establishment of the (re)insurer and the country where
the risk is located or the loss has occurred. Sanctions is a good example where a local company might not be sanc-
tioned from dealing with a local individual, while the reinsurer may be sanctioned from dealing with the same indi-
vidual.
There are also countries, such as the United States, where local courts can alter the terms of the contract or impose
punitive damages well beyond the cover initially agreed with the client, and the liable (re)insurer can face claim
amounts way beyond those agreed in the contract, and possibly way beyond available reinsurance/retrocession
cover.

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Credit risk and payment of the claim.
Credit risk and payment of the claim can also be issues where it is necessary to pass very large payments through
a local (re)insurer who’s capital and free reserves are a fraction of the amount involved. If a company has a paid up
capital of $5,000,000 and is privately owned by a few local businessmen, the international insurer liable for the loss
may be reluctant to pay such a company $25,000,000 to settle a local loss. What if the local company should then go
into liquidation or wish to delay settlement to the local claimant for technical or other reasons?
Payments can also be complicated where a bone fide client/claimant wants to be paid in another country or decides
to only partially rebuild the factory in the currently covered country and build another part in another country. Once
again there can be complex legal and exchange control issues to be solved.
Special circumstances.
(Re)insurers can also be faced with massive differences between the “official” rate of exchange and the “market”
exchange rate. There have been experiences where, for example, the total loss value of helicopters at the “official”
rate of exchange was many times their replacement value due to this financial dislocation, and the requirement to
settle claims at the “official” rate.
There can also be instances where a “foreign” company who has worked hard to obtain a local licence, may be
threatened with losing all its business in the market if it fails to pay a local disputed claim, and paying a claim ex-gra-
tia may nullify any ability to collect the loss from the “foreign” company’s reinsurers.
7.1. Insurance aspects – Particular issues
Often insurance companies may find themselves facing complex international claims, not as a result of a strategy
to write international business in a particular territory but because they find themselves under heavy pressure to
service an important and large client in territories where they have no local office. This may require them to seek a
local representative who is licensed to issue policies in that country.
Problems of “coverage”
In a number of countries local regulations may require a standard local policy to be issued. This local policy may not
have the same coverage terms as those generally provided to the important and large client elsewhere. Indeed many
important and large clients can benefit from manuscript policies which it may be even more difficult to replicate
through a local representative in a country with highly regulated insurance requirements.
In the event of a local claim, the important client may be expecting the same level of cover as it gets in the country
where both the large client and the client’s insurer are established. However this level of cover may be unobtainable
based on the regulation in the country where the important client now wants to do business.
Sometimes these aspects of coverage – the differences in a local wording – may not have been properly addressed
at the time the insurer ventured into a new country just to please its important client.
It is very important also at the time of offering international cover to be sure that the expectations of the client are
properly managed, and that the insurer clearly understands the potential complexity of settling a claim based on
local wordings.
The insurer may also want to refer to its reinsurers to see if one or the other has experience in the territory concerned
and is able to assist in the event a claim should occur there.

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Problems of service.
Equally a local representative may not share the enthusiasm and zeal to provide an efficient and timely service to a
small local company despite the fact it is a major client of an insurance company elsewhere, and this may impair the
level of claims service the insurer wants to offer to its important client.
7.2. Reinsurance aspects – Particular issues
Generally a reinsurer does not have the issues of local representation and its attendant complications, but it certain-
ly can face all the other issues noted above.
In addition reinsurers can face currency issues related to reserves but unlike insurers, they may be able to avoid rule
of law and conflict of law issues by including specific clauses in the reinsurance wording which is agreed between
the parties.
Currency issues.
Reinsurers may also be obliged to leave reserves for outstanding losses with local ceding companies in the local
currency and this can cause significant currency losses if the reinsurer is domiciled in a strong currency area and
the local ceding company in a weak currency area.
For example, if the strong currency is worth 2 of the weak currency when the outstanding loss reserve is set up, the
reinsurer will pay 500,000 in the strong currency to set up a reserve of 1,000,000 in the weak currency. Some, say
14 months later, the outstanding loss reserve is released, but by then the strong currency is worth 4 of the weak cur-
rency, then the reinsurer receives back 250,000 in the strong currency, and it has made a currency loss of 250,000.
This loss could be large enough to put the whole reinsurance arrangement into a loss position for the reinsurer, while
the results of the treaty in the local weak currency show a profit! Such issues may be difficult to explain to a local
cedant expecting renewal at expiring terms or even an improvement in terms as the treaty is so profitable.
Solving certain issues complicating claim settlement.

Many reinsurers may not accept the local jurisdiction of a ceding company to resolve disputes, again because of
many of the problems raised in the general comments above.
Equally a local ceding company may not wish to accept French, German or Norwegian or another law which is in a
completely foreign language and of which it has little or no experience.
Thus both sides may choose English law as having more precedent and experience of international (re)insurance
disputes, and being a language with which both contractual parties have some acquaintance.
Nevertheless this jurisdiction may have laws which differ either from the laws where the reinsurer is established,
or may differ from the laws where the ceding company is established. It may equally require three lawyers, each
familiar with one of the jurisdictions, to review such potential problems either at the time of signing the contract, or
at the time of a loss. This may also result in a number of issues to be resolved between the parties.
Where a reinsurer has deposited an outstanding loss reserve with a ceding company, and according to local law the
ceding company is entitled to a payment, but according to the law where the reinsurer is established the claim is not
covered – for example – because the client of the local ceding company is subject to sanctions, what happens if the
local ceding company takes the payment from the loss reserve set up? Has the reinsurer now committed an illegal
act because it has contributed to the payment of a claim to a sanctioned person?
Generally most international claims are adjusted and settled harmoniously as between the local ceding company and
its foreign reinsurer, but before a company launches itself into international markets it should at least consider some
of the obvious challenges before taking the final decision.

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Arbitration.
Many reinsurance contracts contain an arbitration clause in an attempt to overcome the complexities of resolving
conflicts between legal jurisdictions which may be ill equipped to deal with complex insurance or reinsurance issues.
The advantage of arbitration is that conflicts can be settled among persons expert in the insurance and/or reinsu-
rance fields who may also be permitted by the wording to give proper weight to the practice of international (re)
insurance business, rather than a narrow and strict interpretation of certain local laws.
It is also possible to choose the seat of the arbitration, that is to say where the arbitral tribunal will take place, and
the law which the tribunal should apply. This may be helpful for both parties, who may be familiar with either an
English or a French based system.
There are a number of specialist arbitration organisations, the arbitration clause below is that used by ARIAS UK.
On their web site ARIAS (UK) describe themselves as a «not-for-profit» society formed in 1991 at the instigation of
various members of the legal profession dealing with Insurance and Reinsurance disputes. Lawyers and their clients
had expressed a need to improve arbitration procedures and create a source of trained, insurance-practitioner arbi-
trators from whom well reasoned awards might be forthcoming.
Their wording is as follows:
ARIAS ARBITRATION CLAUSE
All disputes and differences arising under or in connection with this contract shall be referred to arbitration under
ARIAS Arbitration Rules.
The Arbitration Tribunal shall consist of three arbitrators, one to be appointed by the Claimant, one to be appointed
by the Respondent and the third to be appointed by the two appointed arbitrators.
The third member of the Tribunal shall be appointed as soon as practicable (and no later than 28 days) after the
appointment of the two party-appointed arbitrators. The Tribunal shall be constituted upon the appointment of the
third arbitrator.
The Arbitrators shall be persons (including those who have retired) with not less than ten years’ experience of insu-
rance or reinsurance within the industry or as lawyers or other professional advisers serving the industry.
Where a party fails to appoint an arbitrator within 14 days of being called upon to do so or where the two party-ap-
pointed arbitrators fail to appoint a third within 28 days of their appointment, then upon application ARIAS (UK) will
appoint an arbitrator to fill the vacancy. At any time prior to the appointment by ARIAS (UK) the party or arbitrators
in default may make such appointment.
The Tribunal may in its sole discretion make such orders and directions as it considers to be necessary for the final
determination of the matters in dispute. The Tribunal shall have the widest discretion permitted under the law gover-
ning the arbitral procedure when making such orders or directions.
The seat of arbitration shall be ……………………..
The proper law of this contract shall be the law of ………………………….
The above wording is clear both as to the process of setting up the tribunal and the appointment of the arbitrator.
The efficiency of the process is very much governed by the enthusiasm of both sides to reach a result. If both sides
want a quick resolution of their dispute the arbitration process can be a much better solution than the courts. Howe-
ver if one side shows extreme reluctance to reach a result, the courts in general have much wider powers to direct
one party or another to perform.
Another advantage of arbitrations is that they are confidential, so disputes may be resolved discreetly using industry
experts.

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8. CONCLUSION
This course has been designed to expand the knowledge base built in earlier courses and especially to enhance
your understanding of more complex claims management.
As emphasized in the basic claims course, the ability to correctly negotiate and adjust claims, to pay only those
that fall within the cover, and to pay the right amount, all the time providing the claimant with a polite and efficient
service is at the very core of what a (re)insurance company is all about.
Proper claims reserving is particularly important as failure to establish reliable reserves can not only cause poten-
tial clients/investors and the local regulator to doubt the results of the company and possibly its financial stability,
but also if reinsurers cannot have confidence in the figures they receive, they will certainly increase their prices, if
they are willing to accept the business at all.
Perhaps the ultimate challenge is to be up and running and providing a smooth and efficient claims and payment
service in the face of disaster. This will clearly set the company apart from competitors who struggle after a devasta-
ting event. It will also be an opportunity to significantly improve the loyalty of existing clients, and perhaps to easily
tempt clients from those competitors who were unable to maintain even an average service.
It is always interesting to find so many (re)insurance companies who think the “grass is always greener on the
other side” despite the fact that they have little or no familiarity with the language, customs or laws of the country
into which they intend to expand. People are definitely not all alike, and it may be a costly mistake to believe that
everybody in the world thinks and acts as you would.

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9. CASE STUDY – THE AVERAGE COST METHOD
Every effort is made in this manual to suggest solutions that are based on data which should be easily available,
and a process which does not require actuarial qualifications to be understandable.
This is not in any way to underestimate the value of actuarial input, but those in senior management who must
interpret the results which have been produced either by actuaries or others must also fully understand how those
results have been arrived at. One cannot take major strategic decisions about the future of the company based on
figures the origin of which is a complete mystery.
As already noted claims reserving is a voyage into the unknown, and there is no infallible method to accurately
predict the cost of future losses. The process below is an interpretation of what is called the “average cost” method.
This method attempts to predict, for a given portfolio, the ultimate expected claims cost – the ultimate amount that
will be payable to claimants for a given portfolio of policies - based on paid claims and claim numbers.
The mathematics are basic and this type of calculation may even be used by decision makers to compare the result
with more sophisticated and complex models, to check what result appears reasonable or to raise more educated
queries regarding any anomalies.
Here, the claims department receives the follow data:
The data is in respect of paid claims for underwriting years 1 thru 6, developed over 6 years, with an estimate
also of the ultimate amount. The ultimate amount will have been calculated based on the final outcomes of previous
years, or, failing adequate data, it may be developed from pricing data.
Thus in the above table, underwriting year 1 is developed from paid claims of $2,102,000 at the end of year 1 to
an amount of $7,314,000 at the end of the sixth year of underwriting year 1, with an estimate of a final amount when
the underwriting year is closed of $7,781,000.
The rest of the underwriting years 2 to 6 are in various stages of development, and the first task is to calculate
estimates of the likely ultimate amounts for the underwriting years 2 to 6.
In this first example, it is important to note that there is an assumption that the development of underwriting year
1 will be a reliable source to develop all the underwriting years. Thus under this method of calculation only the
development pattern of underwriting year 1 will be used to calculate the development to ultimate of the following
underwriting years.

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The other important point to note is that calculations will be based on the ultimate expected of underwriting year
1. The calculation is as follows:
The first step in the process has been to create line 8. Line 8 shows the progression of underwriting year 1 based
on the percentage of paid claims at the end of each year when compared with the ultimate amount, or the final
expected claims cost of that underwriting year. Thus the amount of paid claims in underwriting year 1 at the end
of year 1 ($2,102,000) represented 27% of the ultimate ($7,781,000). Similarly underwriting year 1 at the end of
development year 5 ($7,004,000) represented 90% of the ultimate ($7,781,000). The calculation to arrive at the
percentage of 90% is G7/I7% or $7,004,000/$7,781,000%.
Again with emphasis on the assumption that in this calculation underwriting year 1 is a reliable development base
for all the other underwriting years, then the percentage figure in the relevant development year for underwriting
year 1 is applied to the latest development figure of underwriting years 2 thru 6. Thus if we take underwriting year 3,
the latest development year is development year 4, and the percentage amount of development based on underwri-
ting year 1 is 80.6% (F8). Thus by dividing $8,471,000 by 80.6% and multiplying by 100%, the result is $10,504,000.
In XL terms =((F11/F8)*100)=10504.
By applying the same process to all the other underwriting years one can arrive at the estimated ultimate for all
underwriting years 2 thru 6. These figures appear in column I.
The claims department also receives data regarding the number of paid claims in the same format as it received
the paid claims data, as follows:
In this graph the underwriting years and the development years follow the same pattern as for paid claims. Thus
for underwriting year 1 there were 614 claims at the end of development year 1, and 1,056 claims at the end of de-
velopment year 4 and there is an expected ultimate number of claims of 1,145 by the time it will be possible to close
underwriting year 1.
Once again the task is to calculate the ultimate estimated number of claims for the underwriting years 2 thru 6.
The process used will be the same as the process used for paid claims EXCEPT that in this case it is not accepted
that underwriting year 1 is a good proxy for the development of all the other underwriting years, and an average of

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the percentage developments in any development year will be taken instead – the process is explained in the graph
and comments below.
The first step in the graph above has been to create line 8. This was calculated in the same way as for paid claims
above. Thus the number of claims in underwriting year 1 at the end of development year 1 is 614. 614 represents 54%
of the ultimate expected number of claims of 1,145. Thus C8=C7/I7%.
The second step is to create line 10.
The first calculation to do this is to calculate the estimated ultimate number of claims for underwriting year 2.
This is done by taking the average of the percentage developments for all available data in development year 5. In
fact development year 5 has only one percentage development figure which is at G8 (95%), so this also presents the
average and the figure at G9 is divided by G8 and multiplied by 100 to produce the ultimate at I9 = 1,359. Thus =(G9/
G8)*100=1359.
The second calculation is to complete the rest of the development percentages in line 10. Thus F9/I9%=89%, E9/
I9%=82% and so on.
The third step is to create line 12.
Once again the first step is to calculate the estimated ultimate number of claims for underwriting year 3. This is
done by taking the average of the percentage developments for all available data in development year 4. Develop-
ment year 4 has two percentage developments – F8 (92%) and F10 (89%), and the average is thus 90% (using round
figures). Thus (F11/F12)*100=1,505.
The second calculation is to complete the rest of the development percentages in line 12.
By the same processes lines 14,16 and 18 are completed.
This method of completing the relevant lines – using the average of available percentage developments to com-
plete a particular development year rather than using underwriting year 1 development percentages as a proxy for
all years – is to show an alternative better suited when the development percentages of the proxy underwriting are
not considered to be consistent over all underwriting years.
The next step is to calculate the average cost of claims, and this can be done in several ways.

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One way is as follows:
The above pattern is the same as for data provided for paid claims and claim numbers, with underwriting years 1
thru 6 shown in their development years according to available data.
The average cost of claims has been calculated by taking the claims paid for a period and dividing this figure by
the claim number for the same period. Thus if one takes the data provided to the claims department for claims paid
for underwriting year 1 in development year 1, the number is $2,102,000. Similarly if one takes the data provided
to the claims department for claims numbers for underwriting year 1 in development year 1, the number is 614.
$2,102,000/614=$3,425 (rounded).
Once again one can calculate the ultimate amounts by using the same process as above for claim numbers and the
result is as follows:
Thus the average estimated cost of a claim in underwriting year 1 is $6,795, for underwriting year 2 $6,663, for
underwriting year 6 $7,046.
Another way to calculate the average cost is to divide the ultimate paid claims we have calculated above by the
ultimate number of claims we have calculated above. Thus, for example, if we divide I11 in the paid claims calculation
($10,504,000) by the corresponding figure in the claims numbers calculation I11=1,505 we get an average claim
amount of $6,979. A comparison between the two methods is given below. Note this number appears as 6,980 in the
following graph which is caused by rounding the numbers to a limited number of decimal places.

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It should be remembered that when originally calculating the paid claims development, underwriting year 1 was
used a proxy for all years, while in the subsequent calculations for claims numbers and average cost of claims (me-
thod 1) an average was taken of all available development percentages for a particular development year. As those
averages were based on more data for the early development years, so the figures above have increasing differences
for underwriting years 3,4,5 and 6.
This shows that calculating reserves is not an exact science, and there will often be choices between taking a
conservative view and a less conservative view.
What is important is for a company to have a CONSISTENT process over the years so that the figures for different
years are based on a similar process and can thus be compared. In the reserving process it is already difficult enough
to compare apples with apples. It is quite impossible to take a view if it is necessary to compare apples with pears!

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10. TEST
Multiple choice questions:
1) Which of the following statements is correct?
a. There is no problem to pay claims monies into any account specified by the claimant.
b. There is no need to define most insurance terms in a manual as everyone understands what they
mean.
c. Even if my company is not subject to sanctions law, I need to be concerned if any of my reinsurers
might be.
d. There is no problem if the claimant has bought me a nice gift as I was going to settle the claim
anyway.
a. If I set up a reserve of 100% of the sum insured, then the claim can’t cost more.
b. Sometimes it is better to reserve claims on a bulk basis.
c. Case reserves need only be reviewed once a year.
d. Short tail claims generally take many years to settle.
a. If I find a better method to reserve claims, there is no problem to change to that method.
b. Consistency of reporting is important.
c. It is not so important to report a claim promptly to reinsurers, especially when the claim will likely take
many months to settle.
d. IBNRs are only important for reinsurers.
a. We use a good consultant actuary to calculate our IBNRs, so we don’t need to understand the
process ourselves.
b. Loss of profits claims are generally only payable if the insured has also a valid material damage
claim under their standard property policy.
c. Generally insureds can make a claim under their loss of profits policy even if they have suffered
no material damage as these are separate covers.
d. It is clear that an insured can’t prove anything if the company’s records have been destroyed by
fire.
a. The rate of gross profit is turnover plus standing charges divided by net profit (%).
b. The rate of gross profit is turnover less net profit divided by standing charges (%).
c. The rate of gross profit is net profit plus insured standing charges divided by turnover (%).
d. The rate of gross profit is net profit plus standing charges divided by turnover (%).
a. Insured standing charges are those charges that are fixed irrespective of turnover.
b. Increased cost of working equals the value of stock before the damage occurred less stock
damaged in the loss, plus additional stock purchased to fulfill customer orders.

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c. The amount payable to a claimant should be equal to their loss of turnover.
d. Insured standing charges are those stated in the policy wording.
a. A third party can only claim damages if they are in a position to prove the injuries/damage
sustained.
b. A third party can prove a claim for damages just by proving the insured owed them a duty of care.
c. A third party can prove a claim for damages just by proving the insured was in breach of their
duty owed to the third party.
d. A third part can prove a claim for damages only if they have legal representation.
a. Generally an insured must pay a reinstatement premium to reinstate their sum insured after a loss.
b. A reinsurer is very reliant on the experience of the ceding company to properly cede losses to the
various covers in its reinsurance programme when a catastrophe occurs.
c. Alternative risk transfer covers are the same as any other (re)insurance cover when it comes to
adjusting claims.
d. The laws of the country where the reinsurer is established are unimportant when it comes to
settling claims under policies issued by the ceding company in its place of establishment.
a. I do not need to understand both the proportional and non-proportional reinsurance programme
of my company when I calculate the amount to cede to the excess of loss treaties protecting the
net retention.
b. It does not matter too much if a mistake is made when ceding losses to the proportional
programme, as if the net loss is thereby increased it will be picked up by the non-proportional
programme covering the net retention.
c. If there has been a real disaster, reinsurers will accept that claims reporting clauses do not apply.
d. Mistakes are generally only accepted by reinsurers if they are rectified immediately upon
discovery.
a. Reserving for claims can be done today simply by applying the correct formulas.
b. One can rely on good actuaries to provide really accurate figures.
c. There is only one way to use the average cost method.
d. It is important to properly understand how all loss data is arrived at, as this is often an important
basis for pricing.

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APPENDIX A
Test answers
The following statements are correct:
1. C
2. B
3. B
4. B
5. C
6. D
7. A
8. B
9. D
10. D

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ADVANCED INSURANCE AND

Prepared for Africa Re by the

Advanced Insurance and Reinsurance Claims Management

DEVELOPING A CLAIMS PHILOSOPHY AND A CLAIMS

CLAIMS RESERVING AND REPORTING...............................................11

DEALING WITH COMPLEX CLAIMS......................................................18

Advanced Insurance and Reinsurance Claims Management

Section 5 RELATED COMPLEX CLAIMS ISSUES.................................................25

Section 7 INTERNATIONAL CLAIMS AND LITIGATION ASPECTS.................39

Section 11 APPENDIX A.................................................................................................51

Advanced Insurance and Reinsurance Claims Management

1.1. Review of previous courses

The main sections of this manual are as follows:

1.2. Learning Objectives

Section 2 – Developing a claims philosophy and claims manual

Section 3 - Claims reserving and reporting

Section 4 – Dealing with complex claims

Section 5 – Related complex claims issues

Section 6 – Catastrophe claims management

Section 7 – International claims and litigation aspects

Advanced Insurance and Reinsurance Claims Management

2.1 Local regulatory position

Any claims strategy will need to take account of local regulation.

2.2 Objectives and strategy

Advanced Insurance and Reinsurance Claims Management

2.3. Consultation with key people within the organization

2.4. Developing a claims manual.

2.4.1. The document itself

Document: Claims Processing Guidelines of the XYZ (Re)In-

Advanced Insurance and Reinsurance Claims Management

Version Date Reason for and Author(s)

Version Date of Authorisation Authorised by

Basic content of such a document might be as follows:

Advanced Insurance and Reinsurance Claims Management

The General Provisions:

2.4.2.3. Responsibilities and competences

Who is the person responsible for claims within the organisation?

That person will be responsible, inter alia, for:

2.4.2.4. Quality standards

Advanced Insurance and Reinsurance Claims Management

Advanced Insurance and Reinsurance Claims Management

The nationality or occupation or status of the insured, or the claimant.

Reserving is dealt with in detail in section 3 below.

2.4.2.10. Claim negotiation and settlement

Advanced Insurance and Reinsurance Claims Management

Advanced Insurance and Reinsurance Claims Management

The overall loss or claims reserve will be made up of:

3.1. Insurance aspects

3.1.1. Individual claims – “average cost” basis

3.1.2. Setting case reserves

Advanced Insurance and Reinsurance Claims Management

Advanced Insurance and Reinsurance Claims Management

3.1.3. Claims reporting

Reports also need to be CLEAR.

Advanced Insurance and Reinsurance Claims Management

The use of factors can also be applied as below.

Advanced Insurance and Reinsurance Claims Management