4 Outline Casualty Excess of Loss Treaty Reinsurance PURPOSES                                                                                  127 TYPES OF CASUALTY REINSURANCE CONTRACTS     128      Quota Share      Per Risk Per Occurrence (Working Cover)      Per Occurrence (Catastrophe, Contingency, or Clash)      Aggregate Excess (Stop Loss) CONSIDERATIONS IN USING CASUALTY EXCESS        137      1. Lines of Insurance Affected and Reinsurance Desired     2. Ultimate Net Loss and Expenses           Allocated Loss Adjustment Expense           Loss in Excess of Policy Limits (XPL), Extra Contractual                Obligations (ECO), and Punitive Damages      3. Integration of Other Reinsurances; Net Retained Line      4. Methods of Attachment and Termination      5. Retention and Limit      6. Definition of Occurrence and Loss Triggers      7. Event Coverage or Interlocking      8. Aggregate Extension and Aggregate Extraction      9. Pricing Tools           Balance           Pricing Factors: Expenses, Margin, Losses                Loss Development and IBNR                Inflation and Loss Trending           Rating Plans and Approaches     10. Ancillary Issues                Structured Settlements                Treaty Special Acceptances                Loss Notice Requirements                Errors and Omissions                Loss Settlement Discretion (Follow the Fortunes) EVALUATIONS AND CONTRIBUTIONS                            195      Reinsurer      Insurer (or Reinsured)      Financial Condition: Reinsurer and Reinsured SUMMARY                                                                                199 4 Casualty Excess of Loss Treaty Reinsurance by Richard M. Shaw *      Casualty excess of loss treaty reinsurance is one of the most difficult areas in which the reinsurer and the insurer strive to reach a mutually satisfactory arrangement. The United States is perhaps unique in having a legal and social climate that makes predictions of future losses in the casualty area nearly impossible. However, the valuation of those losses is done in a market where the two parties in reinsurance have maximum competitive freedom in reaching suitable terms and conditions.      Of the six major elements of the primary insurance business (fire, marine, casualty, suretyship, life, health), the reinsuring of casualty insurance is perhaps the newest because casualty insurance itself is new. Only in recent decades have negligence claims and lawsuits increased rapidly, resulting in liabilities imposed on those who caused losses to others. In fact, many within the industry prefer the term, liability insurance, in describing casualty insurance. Fire and marine insurance reimburse insureds for losses caused by specified perils (fire, windstorm, explosion, among others). Casualty (or liability) insurance reimburses (third parties usually) for losses caused by the broader peril of negligence or alleged negligence within a society that perceives itself as entitled to a free lunch. The three largest sources of casualty . . . · Assistant Vice President and Associate General Counsel, RELIANCE INSURANCE COMPANY, 4 Penn Center Plaza, Philadelphia PA 19103. An autobiography follows this chapter, which draws from the original entitled The Excess of Loss Treaty in Casualty Insurance by LeRoy Simon, published in the 1980 edition of this book, and the chapter entitled Casualty Excess of Loss by this author, published in Reinsurance Contract Wording, 1992, and contains substantial portions of both chapters in an effort to consolidate and update the thoughts presented. This author benefited extensively from the expertise and kind assistance of Paul Ingrey, Chairman, F&G RE, INC., of Morristown NJ, Robert E. Evans, Senior Vice President and General Manager, ALLMERICA RE, A Division of The Hanover Insurance Co., of Florham Park NJ, George H. Roberts, President, and Jon Ingersoll, Edward Stanco, Robert Miccolis, and Arthur Mella, Senior Vice Presidents of RELIANCE REINSURANCE CORP., for technical assistance in writing this chapter. Deborah Cohen of PEPPER, HAMILTON & SCHEETZ in Philadelphia graciously provided independent legal review.