COVID-19 Losses And Reinsurance Aggregation

Insurance companies pay all sorts of claims that may not qualify for coverage under their reinsurance contracts. Sometimes, it is because the individual claims are too small and do not exceed the insurance company’s reinsurance retention on an individual loss basis.

Other times, multiple losses arise out of the same incident, and the insurance company’s standard reinsurance contract has an aggregate limit or a limit on the number of losses that can be ceded from a single incident.

Insurance companies may try to remedy this situation by purchasing reinsurance that permits the insurance company to aggregate certain individual losses together as a single loss to qualify for coverage under the reinsurance contract.

For example, insurance companies often purchase property catastrophe reinsurance protection for accumulated losses from hurricanes, wildfires, and other natural and manmade disasters, which allows them to aggregate a pool of smaller individual losses into one single loss or occurrence for reinsurance purposes that would not otherwise be reinsured.

When new types of losses arise, like those spawned by the novel coronavirus, the question of whether aggregation applies to those individual losses begins anew.