SN #110 page 31: Loss Occurring vs. Risk Attaching

[HeppeBunnie]

So, most of the study note describes/refers to "stop-loss" as an arrangement between a self-insured employer (A) and an insurer who sells stop-loss coverage (B).

Now, when it talks about a "Risk Attaching" basis, it sounds to me like it's not really referring to the arrangement between A and B, but rather the arrangement between B and its reinsurer (C). That's the only way I can get the example in the paragraph to make sense in my head: C reinsures the coverages that B sells during the reinsurance coverage period.

Can someone please tell me if I have the above right? Or is the example talking about the arrangement between A and B, with risks attaching onto A?

Thanks in advance

[HeppeBunnie]

Anybody?

[Rainson]

My general understanding is that an insurance company can purchase reinsurance on either a "loss occuring" or "risk attaching" basis (I'm sure there are other ways too). I think the "loss occuring" basis is more common in health insurance; and the "risk attaching" basis is used more in P&C.

If reinsurance is purchased for calendar year 2007 on a "loss occuring" basis, it would simply cover claims that occured in calendar year 2007 (subject of course to all policy provisions related to deductibles, etc.)

If instead it is purchased on a risk attaching basis, it covers all policies that are issued or renewed during the coverage period (in this case calendar year 2007) and covers them for the period covered by the policy. So for a policy issued or renewed on 1/1/07 for 12 months of coverage, the claims subject to reinsurance would be those incurred from 1/1/07 - 12/31/07. But, for a policy issued or renewed 4/1/07 for 12 months of coverage, the claims subject to reinsurance would be those incurred from 4/1/07 - 3/31/08. simply put, the risk the reinsurance covers is those that "attach" during the reinsurance coverage period (calendar year 2007) and the reinsurance covers the risk(s) attached to the underlying policies (ie. for the period of coverage provided by the underlying policies).

[thing]

Can someone please tell me if I have the above right?

Yes, re-reading pp. 31-32, I agree they seem to be talking about an agreement between an insurer and a re-insurer, not between a group and an insurer.

[HeppeBunnie]

Woohoo! I win! Take that, CSP