Retention and Cession under a Marine Cargo Surplus Treaty can be either on

Any One Policy Basis: Policy issued or declaration received or Bill of Lading issued. Much simpler than Any one Risk basis. However, retention chosen has to be much lower (may be even one-tenth) of the retention that could be chosen in case of a “Any one Risk Basis” of retention/cession.

OR

Any one Risk Basis: Risk or Bottom or Vessel or Conveyance. Ability to track accumulation is key if this method of retention or cession is followed.

Sometimes, combination of the two may also be possible,

This reinsurance protection should be further bolstered by Marine Cargo XL – for “any one policy basis” with both a Working XL as well as CAT XL AND for an “any one Risk Basis” with a CAT XL.

Peter Makokha, AIIK, YIPP in response to my yesterday post on graded retention mentioned about the possible anti-selection against reinsurer in a Property Surplus Treaty with Graded retention. He is perfectly right except that when the mechanism of grading is pre-decided rather than leaving it open to reinsured to decide on case-to-case basis, reinsurer is entering the contract with their eyes wide open. And since Number of Lines is same, as retention reduces, reinsurer limit also reduces.

When it comes to marine cargo proportional reinsurance, leave alone anti-selection, possibility (or shall I say temptation) of moral hazard is quite high. Hence, need for reinsurers to select reinsured who view relationship with reinsurers as long-term partnership rather than a year-by-year transaction is critical before offering a Marine Cargo Surplus Treaty. They would be better off by offering a Marine Cargo XL without a proportional support.

Blog by Atmaram Cheruvu