Calculate reinsurance cession for a large loss under treaty terms

Steps

1. Retrieve the treaty terms for the affected policy from your reinsurance contract management system: treaty type (quota share, excess of loss, facultative), retention limit, cession percentage or layer attachment and limit, and any co-participation clauses.
2. Identify the gross loss amount from the claims system and apply any applicable deductibles or salvage/subrogation recoveries to arrive at the net loss to the treaty.
3. For excess-of-loss treaties: calculate the amount exceeding the retention (attachment point) up to the treaty limit; if the loss exceeds the treaty limit, identify whether an upper layer treaty or facultative placement picks up the excess.
4. For quota share treaties: apply the cession percentage to the net loss to determine the reinsurer's share; compute the ceding commission recovery (if applicable under the treaty terms) on the ceded premium earned for the period.
5. Record the cession in your reinsurance accounting system: debit reinsurance recoverable, credit claims expense; attach the underlying claim data and treaty reference to the cession record.
6. Generate the large-loss notice to the reinsurer within the contractual reporting deadline (treaty clauses typically specify a notice threshold and deadline — consult your specific treaty language) with required data elements: claim number, date of loss, coverage, gross reserve, and ceded amount.