Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p11
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 27362–30243

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 revenue that the cedant is likely to receive.  The reinsurer is likely to estimate this by communicating with the cedant, and by reviewing past experience.
4.4.9 For a typical non-proportional treaty, such as an excess of loss treaty, the period of indemnity is usually the same as the contract period.  For example, an excess of loss treaty could indemnify a cedant for all claims incurred above the excess (either individual claims or in aggregate) during the contract period, or for all claims made during the contract period.  For some of these contracts the pattern of the incidence of risk is likely to be linear and hence for these contracts the premium revenue expected under the contract is earned evenly over the contract period.
4.4.10 With a non-proportional treaty the reinsurer estimates the total liabilities that are likely to arise under the underlying insurance contracts to enable an estimation of the total inwards reinsurance premium revenue expected under the contract.  Where relevant, the reinsurer estimates whether the cedant is likely to want to reinstate the contract, in which case the reinsurer considers the additional reinstatement premiums it is expected to receive and the extent that they may have been earned at the end of the reporting period.  A reinsurer liaises closely with the cedant, reviews any market information on significant losses or events that may have arisen, for example a hailstorm or earthquake, and reviews past experience.
4.4.11 Some reinsurance contracts might involve an experience account.  Whilst such contracts may require annual renewal, in substance the contract period is likely to be greater than one year.  In estimating the total inwards reinsurance premium expected under the contract and in estimating the total reinsurance claims, to determine the pattern of the incidence of risk, the reinsurer considers the probability-weighted expected cash flows over the expected period of the contract, and discounts these cash flows to reflect the time value of money.  Section 6 discusses the determination of discount rates.  In determining the expected cash flows, the reinsurer considers any cash flows such as profit commissions and commission rebates.
Adjusted premiums
4.4.12 For some classes of insurance it is usual for the premium to be adjusted as a result of events and information that only become known during or after the insurance contract period.  For example, marine cargo insurance is a type of "adjustable" business for which a deposit premium is paid at the beginning of the contract period and subsequently adjusted on