Definition:Risks attaching during
📅 Risks attaching during is a reinsurance contract basis under which the reinsurer covers all policies incepting (or "attaching") within the defined treaty period, regardless of when losses under those policies actually occur. If an underlying policy begins during the treaty term — say, a twelve-month treaty running from January 1 to December 31 — the reinsurer remains liable for claims arising from that policy even if the loss event happens after the treaty's expiration date. This stands in contrast to the losses occurring during basis, where coverage depends on when the loss event takes place rather than when the underlying policy incepted.
⚙️ Under a risks-attaching treaty, the cedant cedes every qualifying policy that incepts during the treaty period, along with its corresponding premium and loss obligations. Because some of these policies may run well beyond the treaty expiration — a policy incepting on December 15 of the treaty year, for instance, could generate claims twelve months later — the reinsurer's exposure can extend significantly past the nominal treaty term. This "tail" of liability requires careful reserving and is a key consideration in reinsurance pricing negotiations. The risks-attaching basis is commonly used in proportional treaties such as quota share and surplus share arrangements, and is prevalent in markets worldwide, including placements through Lloyd's, Continental European reinsurers, and Asian reinsurance hubs.
🧩 The choice between risks-attaching and losses-occurring bases carries significant implications for both parties. For the cedant, a risks-attaching treaty provides certainty that every policy written during the period has reinsurance protection for its full duration, simplifying underwriting and administration. For the reinsurer, the extended tail means that loss emergence and development patterns must be modeled carefully, and that final commutation or settlement of the treaty may occur years after the nominal expiry. Accounting treatment also differs: under IFRS 17 and various local GAAP standards, the earned premium and loss recognition patterns for risks-attaching treaties follow the underlying policy periods, which can create timing differences compared to losses-occurring contracts. Understanding this distinction is essential for anyone involved in structuring, pricing, or accounting for reinsurance programs.
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