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Chapter 11 Casualty reinsurance 11/11

Example 11.4
On 6 February 1958, the Manchester United football team were involved in an air crash in Munich where a total of 21
people were killed. Given the levels of remuneration received by top-flight professional footballers today, if such a
tragedy were to be repeated the known accumulation risk would be vast.

C3B Unknown accumulations
An unknown accumulation may occur where several persons insured with the same insurer may, by
chance, be affected by a natural disaster. In an individual case it may be difficult to define the precise
scope of cover, with the result that obligatory reinsurance treaties often do so pragmatically, by defining
the risks that are regarded as a known accumulation and are therefore excluded.
A distinction is also made between known and unknown accumulations for the purposes of determining
the preferred form of reinsurance. In known accumulation, the insurer is aware that accumulation may
occur. This would be the case where group accident policies are effected for specific tour groups. By
contrast, in unknown accumulation, the insurer is not aware that individual risks can accumulate.

C4 Types of reinsurance purchased

Facultative business is written in respect of all standard personal accident insurances, such as
individual, group, travel, aviation, work and leisure accident covers. Personal accident insurance may be
written facultatively on a standalone basis, without the reinsurer necessarily having a treaty relationship
with the reinsured.
With group personal accident insurances, it is important for the reinsurer to set an appropriate
Important for the
accumulation limit or an annual limit to sums insured. reinsurer to set an
appropriate
With personal accident insurance, containment of the moral hazard and professional claims handling accumulation limit
have an important role. Care must be taken to ensure that the cedant’s net retention is appropriate, so
that the interests of the cedant and the reinsurer converge.
Facultative
For individual personal accident insurances covering death benefits, where the only type of loss is a total Reference copy for CII Face to Face Training
loss claim, quota share represents an appropriate form of reinsurance. For the other types of benefits,
proportional participation is also appropriate in order to prevent insurers’ and reinsurers’ interests from
diverging.

Be aware
In the case of excess of loss covers in respect of disability benefits, it may be possible for the insurer to carry out
stringent claims settlement to decline once the disablement exceeds the excess point.

For group personal accident insurances, proportional reinsurance and catastrophe excess of loss covers
are both common. For short-term known accumulations for which there are only relatively small
reinsurance premiums, facultative reinsurance tends to be in the form of a catastrophe excess of loss
since there are no claims handling costs for small losses. As a rule maximum cover is one year or, in the
case of short events or journeys, for the period concerned.

For each enquiry, minimum information would be the name of the policyholder and of any insured
person(s), the number of persons, their age, manual or non-manual occupation and claims experience.

Question 11.4

Why would the policyholder’s state of health also be relevant?

Treaty
The object of personal accident reinsurance is always to make the sums insured homogeneous. Surplus
reinsurance treaties are especially suitable for individual personal accident business and known
accumulations, while a quota share treaty or per-risk excess of loss treaty is only appropriate in
exceptional cases, such as death only covers. For compensating major loss accumulations, catastrophe
excess of loss per event treaties are the best solution. Chapter

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