Underwriting Property Preservation Security Insurance for Cross Border Claims
Property preservation security insurance requires onshore Chinese guarantees backed by enforceable offshore bank collateral to mitigate cross-border subrogation risks.
Excess of Loss Treaty
Meaning
A non-proportional reinsurance agreement requires the reinsurer to indemnify the ceding company for losses that exceed a specified retention limit. The excess of loss treaty operates as a critical mechanism for catastrophe risk management among insurers in China. It applies to predefined categories of risk and does not require the sharing of individual premiums on a proportional basis.
Retention Level
The primary insurer retains full responsibility for all claims that fall below the designated financial threshold. This attachment point is calculated based on the risk appetite and capital strength of the ceding office. When a catastrophic event occurs, the treaty is triggered only after the primary insurer has exhausted this self-insured retention.
The reinsurer then covers the remaining loss up to the limit of the contract.
Premium Structure
The price of this coverage is generally calculated as a percentage of the gross subject premium of the primary insurer. This rate is determined using historical loss experience and probabilistic modeling of catastrophic exposures. The ceding company pays a deposit premium at the beginning of the coverage period, which is adjusted later based on actual exposure.
Coverage Boundary
Specific exclusions limit the scope of the reinsurance cover to protect the capital of the reinsuring entity. Nuclear risks, acts of war, and certain environmental liabilities are routinely omitted from the treaty.