Limited Carry Forward
by aggregate method
Within the carry forward system there is an overall or aggregate loss limitation provision. Under the LCF system if, at the end of an accumulation period, the loss carried forward is greater than a given multiple of the latest year's risk premium, the excess over this amount is borne by the network. The multiple is four if there are 200 to 499 units; three if there are 500 to 999 units; and two if there are 1,000 units or more.
Insurope provides great flexibility in allowing clients to discuss these loss cancellation limits adjusting the risk charge accordingly. This allows clients to tailor make their own arrangement in terms of risk borne allowing them to reach a compromise in terms of retention between stop loss and carry forward pooling systems.
In addition, the excess of a single claim above the free cover limit is absorbed by Insurope. If required, lower limits on a single claim can be arranged. Pools in a loss position are enlarged without subsequent surplus from new plans being used to offset existing losses.
by accrual method
Insurope can implement a Limited Carry Forward pooling arrangement on a 2, 3 or 5 year basis. Such a system actually limits in time the "carry forward" of losses to future years.
For example under the the 2 year option the system guarantees that the accrual of loss during a particular year will only be carried forward for maximum two years. After this period the remaining balance which was not offset by potential surpluses during that period will be cancelled.
The advantage of such a system is that particularly poor experience occurring in a particular year will only impact the pool for a limited period.
Example of a 2 year limited stop loss system
|Result||Balance||carried forward||Loss cancelled|
|End year 2005||-100||-100||0|
|End year 2006||50||-50||0|
|End year 2007||20||0||30|
|End year 2008||-100||-100||0|
|End year 2009||-50||-150||0|
|End year 2010||30||-50||70|
|End year 2011||10||0||40|
At the end of year 2007 the loss from '05 had been outstanding for 2 years and therefore the remaining balance of -30 (-100+50(surplus 2006)+20(surplus 2007)) is cancelled.
At the end of year 2010 the loss from '08 had been outstanding for 2 years and therefore the remaining balance of -70 (-100+0(no surplus in 2009)+30(surplus 2010)) is cancelled.
At the end of year 2011 the loss from '09 had been outstanding for 2 years and therefore the remaining balance of -40 (-50+0 (surplus 2010 already used as offset for loss 2008)+10(surplus 2011)) is cancelled.
Surplus results cannot be used twice for offset purposes therefore the "FIFO" principle ( "first in first out" ) applies.
Limited Carry Forward options are available to pools above 1,000 lives. If a pool should thereafter fall below this a reversion to the Multipool System would apply with appropriate consideration taken in respect of any loss being carried forward at that point in time.
Risk Charges levels for Limited Carry Forward alternatives are adjusted accordingly to take into account a greater or lesser risk of loss cancellation.