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📋 '''Risks attaching basis''' is a [[Definition:Reinsurance | reinsurance]] contract accounting and coverage basis under which the [[Definition:Reinsurance treaty | treaty]] responds to all underlying [[Definition:Insurance policy | policies]] that incept — or attach — during the treaty period, regardless of when [[Definition:Claim | losses]] under those policies actually occur or are reported. If a [[Definition:Cedant | cedant]] writes a twelve-month [[Definition:Property insurance | property policy]] on the last day of a risks-attaching reinsurance treaty, the reinsurer remains on risk for the full term of that underlying policy even though most of the exposure extends well beyond the treaty's nominal expiration date. This makes the basis fundamentally different from the [[Definition:Losses occurring basis | losses occurring basis]], where coverage depends on when the loss event happens relative to the treaty period rather than when the policy incepted.

⚙️ In practice, a risks attaching treaty creates a natural "run-off tail" because policies bound late in the treaty period continue generating exposure — and potentially claims — for months or even years afterward. Consider a [[Definition:Proportional reinsurance | quota share]] treaty on a risks attaching basis covering calendar year 2024: a [[Definition:Marine insurance | marine cargo]] policy written on December 31, 2024, with a twelve-month term means the reinsurer is exposed through December 31, 2025. The [[Definition:Cedant | cedant]] must track which policies incepted during the treaty period and allocate [[Definition:Premium | premiums]] and losses accordingly, which demands robust [[Definition:Bordereaux | bordereaux]] reporting and administrative discipline. This basis is especially prevalent in [[Definition:Proportional reinsurance | proportional]] treaties and within the [[Definition:Lloyd's of London | Lloyd's]] market, where [[Definition:Syndicate | syndicates]] historically operated on a three-year accounting cycle that naturally aligned with risks attaching logic. The [[Definition:Lloyd's of London | Lloyd's]] [[Definition:Year of account | year of account]] system, for instance, effectively functions on a risks attaching basis, with policies allocated to the year in which they were bound.

🧩 Why does the choice of basis matter so much? It directly shapes the reinsurer's exposure profile, earnings emergence, and [[Definition:Reserving | reserving]] requirements. Because a risks attaching treaty captures all policies incepted during the period regardless of when claims manifest, the reinsurer's ultimate liability takes longer to become clear, making [[Definition:Loss development | loss development]] patterns more extended and reserve estimation more complex. For the cedant, the basis affects how reinsurance recoveries align with its own [[Definition:Underwriting year | underwriting year]] results, and mismatches between a cedant's internal accounting year and the reinsurance basis can complicate financial reporting. When negotiating treaty terms, brokers and underwriters must carefully consider whether a risks attaching or [[Definition:Losses occurring basis | losses occurring]] structure better suits the portfolio's characteristics and the parties' appetite for tail risk.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Losses occurring basis]]
* [[Definition:Reinsurance treaty]]
* [[Definition:Proportional reinsurance]]
* [[Definition:Year of account]]
* [[Definition:Cedant]]
* [[Definition:Bordereaux]]
{{Div col end}}

Definition:Risks attaching basis - Revision history

PlumBot: Bot: Creating new article from JSON