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Premiums and claims reserves
• Premium reserves and claims reserves allow the reinsured to hold monies during the term of the treaty for later
release to the reinsurer.
• The premium reserve deposit is a proportion of the ceded premium while a claims reserve deposit is the estimated
amount of losses outstanding at a given date.
• Premium reserves are mainly held in cash or in letter of credit format issued on a mutually acceptable bank.
• Claims reserves are established and retained by the reinsured at the anniversary date of the treaty with an
adjustment that takes place quarterly, half-yearly or annually.
• Claims reserves can impact the reinsurer’s ability to maximise investment opportunities.

Calculation of reinsurance premiums and claim recoveries
• The reinsurance premium is the price of the cover charged by the reinsurer in consideration for underwriting
the risk.
• The basis for calculation of the reinsurance premium varies according to the type of reinsurance contract.
• Premium income means the total of all the original premiums received by the insurer which are passed, i.e. ceded
4 to the reinsurer.
Chapter • The premiums are usually gross, as written by the insurer, but occasionally they can be the original net premiums.

Cession and event limits
• Special conditions are imposed to control catastrophe exposure to natural perils. Common measures include:
– cession limits, that require the reinsured to advise reinsurers periodically of the total of all business exposed to
natural perils and ceded to the treaty. (the actual amount of the cession limit is negotiated between reinsured and
reinsurer); and
– event limits, that act as a ‘first loss’ limit, beyond which reinsurers would not be liable if the event limit were to be
exceeded following a natural perils loss affecting the treaty.
• Cession and event limits can be applied independently or in tandem. Reference copy for CII Face to Face Training