Re-insurance

Reinsurance arrangements

The Syndicate purchases proportional reinsurance to supplement line size and facilitate cover to reduce exposure on individual risks. A part of the premium ceded under such facilities is placed with Amlin Bermuda and a separate proportional facility currently is placed for the US catastrophe XL portfolio. The Syndicate also purchases a number of excess of loss reinsurances to protect itself from severe frequency or size of losses. The structure of the programme and type of protection bought will vary from year to year depending on the availability and price of cover.

On large risks individual facultative reinsurance may be bought which protects against a loss to that specific risk.

Specific risk excess of loss reinsurance is purchased for each class of business. The amount of cover bought depends upon the line size written for each class. For instance, unlimited cover is bought for our UK motor portfolio where unlimited third party cover is given on original policies. The deductibles or amounts borne prior to recovery vary from class to class as do the amounts of co-reinsurance or unplaced protection. Specific programmes are purchased to deal with large individual risk losses such as a fire or large energy loss and these programmes may be combined at a higher level into a general programme for larger losses.

The combined claims to the Syndicate from several losses which aggregate in a single catastrophe event are protected by catastrophe cover. A separate XL on XL programme may be purchased to protect the XL reinsurance portfolio against such losses. The Syndicate may also purchase multi-class umbrella protection which responds to a catastrophe loss which could exceed any of the specific programmes bought for aviation, property or XL reinsurance losses. However, since 2006, the level of XL reinsurance purchased is significantly lower and covers only very large events, and no multi-class umbrella protection has been purchased.

There is no guarantee that reinsurance coverage will be available to meet all potential loss circumstances as, for very severe catastrophe losses, it is possible that the full extent of the cover bought is not sufficient. Any loss amount which exceeds the programme would be retained by the Syndicate. It is also possible that a dispute could arise with a reinsurer which reduces the recovery made. The reinsurance programme is bought to cover the expected claims arising on the original portfolio. However it is possible for there to be a mismatch or a gap in cover which would result in a higher than expected retained loss.

Many parts of the programme also have limited reinstatements and therefore the number of claims which may be recovered from second or subsequent major losses is limited. It is possible for the programme to be exhausted by a series of losses in one annual period and it may not be possible to purchase additional reinsurance at an acceptable price. This would result in the Group bearing higher losses from further events occurring. It should also be noted that the renewal date of the reinsurance programmes does not necessarily correspond to that of the business written. Where business is not protected by risk attaching reinsurance, (which provides coverage for the duration of the policies written), this reinsurance protection could expire resulting in an increase in possible loss retained by the Syndicate if renewal of the programme is not achieved.

Amlin Bermuda is presently not protected by any reinsurance programme although the Company may decide to purchase reinsurance in the future.

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