Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p10
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 24757–27639

that will give rise to claims is evenly spread throughout the contract period.  For these contracts the premium revenue will be earned evenly over the period of the contract.  However, for some direct insurance contracts the risk of events occurring that will give rise to claims is not evenly spread throughout the contract.  For example, with motor insurance contracts, the risk of events occurring that will give rise to claims may be subject to seasonal factors.
4.4.5 Insurers estimate the pattern of the incidence of risk expected under the general insurance contracts from the attachment date.  An insurer may be able to reliably estimate the pattern for a particular type of insurance business based upon past experience.  However, when there have been changes in the nature of the cover provided, or, when there has been a change in loss experience, the insurer reflects this in the estimations.
Reinsurance business
4.4.6 Reinsurers recognise reinsurance premiums over the period of indemnity provided by the reinsurance contract in accordance with the pattern of the incidence of risk.  For a typical twelve-month proportional treaty, such as a quota share treaty, written on a "risks attaching basis", the period of indemnity will be twenty-four months, as the proportional treaty will indemnify the direct insurer (or, for retrocession, the reinsurer) for losses arising under direct policies written during the twelve-month contract period.  Hence, an underlying annual direct contract written on the last day of the reinsurance contract has twelve months of insurance cover beyond the last day of the reinsurance contract.  The reinsurer estimates the pattern of the incidence of risk over the twenty-four-month indemnity period.
4.4.7 The reinsurer may be able to reliably estimate the pattern for a particular type of reinsurance business based upon past experience.  The reinsurer is likely to seek information from the cedant to estimate the pattern of the incidence of loss expected.  When there have been changes in the nature of the cover provided or when there has been a change in loss experience the insurer will need to reflect this in the estimations.
4.4.8 To determine the pattern of the incidence of risk, reinsurers first determine the total reinsurance premiums expected under the contract.  The premiums receivable under reinsurance treaties often depend on the volume of business written by the cedant after the reporting period but before the treaty expiry date.  This is always true of proportional (quota share and surplus) treaties that span the end of the reporting period, and is often true of non-proportional treaties.  For such treaties, to estimate the total premium revenue expected under the reinsurance contract, the reinsurer estimates the inwards reinsurance premium it will receive under the contract by estimating the gross premium