Definition:Risks attaching
📅 Risks attaching is a basis of reinsurance contract coverage under which the reinsurer assumes liability for all underlying policies whose inception date (or renewal date) falls within the treaty period, regardless of when losses under those policies actually occur. This means a reinsurance treaty written on a risks-attaching basis covers the entire lifetime of qualifying original policies that begin during the treaty year, even if claims arising from those policies are reported or settled long after the treaty has expired.
⚙️ Under a risks-attaching treaty, the critical trigger is the original policy's inception or attachment date — not the date of the loss event. If a cedent's proportional treaty runs on a risks-attaching basis from January 1 to December 31, 2025, every underlying policy incepting in that window is covered for its full term (typically twelve months, sometimes longer), meaning the treaty's exposure can extend well into 2026 or beyond. This contrasts sharply with the losses-occurring basis, where coverage depends on the date of the loss event itself falling within the treaty period, irrespective of when the underlying policy incepted. The risks-attaching approach is most commonly used in proportional ( quota-share and surplus) treaties, where the reinsurer shares in the premium and loss of each ceded policy from inception to expiry. Actuaries and brokers must carefully account for the "pipeline" effect: because policies incepting late in the treaty year will have most of their exposure and loss development in the subsequent calendar year, the treaty's premium earning and loss emergence patterns lag behind those of a losses-occurring treaty.
📌 This distinction has meaningful consequences for both parties' financials and for treaty administration. The cedent enjoys certainty that all policies bound during the treaty period are fully reinsured for their entire duration, which simplifies cession processes and avoids coverage gaps at treaty renewal. The reinsurer, however, must recognize that its exposure to a risks-attaching treaty does not terminate neatly at year-end — loss development can trail for years, particularly in long-tail casualty classes. This extended tail affects reserving, profit-commission calculations, and the timing of commutation discussions. In the Lloyd's market, risks-attaching treaties interact with the annual year-of-account accounting system, influencing how and when syndicates close years and calculate reinsurance to close. Understanding the distinction between risks-attaching and losses-occurring coverage is fundamental for anyone involved in treaty structuring, pricing, or financial reporting.
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