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Loss discovered/claims made basis
On this basis, reinsurers agree to assume liability for circumstances notified to the insurer that fall
within the period of the reinsurance. Reinsurers’ exposure to loss is not, therefore, determined by the
inception date of the original policy, or when the loss occurred, but by when the original claim was made
or the loss discovered.
In this way, the reinsurance contract seeks to replicate the basis of the underlying insurance contracts.
Accordingly, this basis tends to be reserved for liability (or casualty) treaties. As with the other contract
bases, this clause should also address the consequences of non-renewal of the reinsurance contract.
If original policies written on a losses discovered or claims made basis are to be protected by a LOD
treaty, it is common in order to avoid disagreements as to when a particular loss actually occurred to
include a losses discovered or claims made clause as follows:

1. It is understood and agreed that as regards losses arising under Policies and/or Contracts covering on
a ‘Losses Discovered’ or ‘Claims Made’ basis, that is to say Policies and/or Contracts in which the
date of discovery of the loss or the date when the claim is made determines under which Policy or
Contract the loss is collectable, such losses are covered hereunder irrespective of the date on which
the loss occurs provided that the date of the discovery of the loss, in respect of Policies and/or
Contracts on a ‘Losses Discovered’ basis or the date the claim is made, in respect of Policies and/or
Contracts on a ‘Claims Made’ basis, falls within the period of this Reinsurance.
2. For the purpose of the foregoing the date of the first discovery of a loss occurrence or the date a
claim is first made, shall be the date applicable to the entire loss and the Reinsurers shall be liable for
their proportion of the entire loss irrespective of the expiry date of this Reinsurance provided that such
date falls within the period of this Reinsurance.

So, the date of first discovery (for losses discovered policies) or the date a claim is first made (for claims
made policies) is the date which must fall within the period of the treaty.

Question 7.4
If, in successive calendar years, the basis of cover clause changes from RAD to LOD, is there a gap in reinsurance Reference copy for CII Face to Face Training
cover?

D2 Premium
7 Refer to chapter 5, This clause sets out how much reinsurance premium is to be paid and when it is to be paid. The
Chapter non-proportional premium may be either fixed at the outset or adjustable in accordance with a specified rate or
section C for
premiums
calculation.
D3 UNL clause

This clause is central to excess of loss reinsurance, and describes the loss to which the treaty limits (and
Sum actually paid by
the reinsured in deductibles) are applied. In short, the UNL is the sum actually paid by the reinsured in settlement of
settlement of losses losses or liability after agreed deductions.
or liability after
agreed deductions
The important points to note about the UNL clause are as follows:
• The UNL comprises the sum actually paid (or, on occasion, payable or to be paid or liable to be paid)
by the reinsured in settlement of losses/claims. Accordingly, the reinsurance contract is not a form of
contingency cover, but a contract to indemnify loss, subject to those exceptions.
• Unless specifically excluded, expenses attributable to the claim are included in the UNL (for example,
legal and loss adjustment expenses). Usual office expenses and salaries payable by the reinsured
cannot be included as a claims expense on the basis that they would be incurred whether a claim
subject to recovery occurred or not. Some contracts reimburse reinsureds for extraordinary costs for
staff when diverted from their normal duties, for example, overtime to pursue recovery actions.
If expenses are not included in the UNL, they may be recoverable in addition to the limit of indemnity
in which case they will be pro-rated in proportion to reinsurers’ share of the loss.