Page 97 - Liability Insurance IC74

Guide for Liability Insurance

reinsurance, whether recovered or not. So, in other
words, the ultimate net loss means the actual amount of
the loss paid plus legal and adjustment expenses of claim
settlement less recoveries in respect of salvage, and
amounts recoverable from other insurances .

For e.g, if the underlying and overlying limits are 5 lacs
or 15 lacs respectively, the reinsurers will pay the
ultimate net loss in excess of 5 lacs, but up 15 lakhs. On
the other hand, if the amount of the ultimate net loss is
more than Rs 15 lacs, the excess amount is borne by
the ceding company.

Another Excess of loss treaty may be arranged to pay
Rs 20 lacs in excess of Rs 20 Lacs. To provide further
protection for catastrophe losses, another treaty may
be arranged to pay Rs 60 lacs in excess of Rs 40 lacs.

Thus excess of loss protection can be arranged in layers.
So, if there is a loss of Rs 1 crore, the reinsured will
retain Rs 5 lacs and recover Rs 95 lacs for reinsurers
under this treaty.

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