Hello, I am trying to get my head around adverse development cover. I feel like this is exactly the same as excess of loss cover. Could someone please explain the difference between these? Thanks in advance! Thamar
See SAQ 6.25. There are some similarities but a number of subtle differences: With excess of loss cover, the limits are usually fixed in nominal terms (eg $1m xs $1m) at the outset. With an ADC the cover usually protects the insurer once losses exceed a pre-agreed amount, which is often the current held reserves (so may incorporate the cedant's estimate of outstanding and IBNR) at the time the ADC is arranged. An ADC usually covers an entire book of business. The ADC is protecting the cedant from significant reserve deterioration on run-off business. An excess of loss protection protects the cedant from large losses (either individually, risk XL, or in aggregate, agg XL). Recoveries under and excess of loss contract would only be received from the reinsurer when losses are actually paid by the cedant.
