What is reinsured

Liability reinsurance protects insurers against large and accumulated third-party claims. The portfolio includes companies' general liability, professional liability (doctors, appraisers, notaries, designers, IT companies), directors' and officers' liability (D&O), product liability, environmental liability, and compulsory lines: OSAGO (compulsory motor third-party liability insurance), OSOPO (compulsory liability insurance for owners of hazardous facilities, Federal Law No. 225-FZ) and OSGOP (compulsory carrier liability insurance to passengers, Federal Law No. 67-FZ).

What makes this line special

  • Long tail. Years can pass between the event and the final payment: claim, expert review, court, appeal.
  • Reserves. A substantial part of the liabilities is the reserve for incurred but not reported losses (IBNR), estimated by actuaries.
  • Claims inflation. The cost of treatment and repairs and the size of awarded compensation grow over time.
  • Systemic losses. One cause, such as a product defect, an error in a standard design or an accident, generates claims under many policies at once.

Basis of cover

Liability policies are written either on an occurrence basis (covering events that happened during the policy period) or on a claims made basis (covering claims first made during the policy period, often with a retroactive date). The reinsurance treaty must match the basis of the original policies, otherwise part of the losses may be left without reinsurance protection.

How a reinsurer assesses the portfolio

The reinsurer needs information on the portfolio composition: the insureds' activities, limits and deductibles, policy basis, and distribution by region and industry. A loss history for several years with development by year is important, showing how reported amounts and reserves changed for each accident year. On this basis, actuaries estimate ultimate losses and reserve adequacy. The largest claims, court practice and potential systemic scenarios are analyzed separately, for example an error in a standard design that affects many buildings by one designer.

For professional liability and D&O, what matters is underwriting quality, requirements for the insureds' experience and qualifications, the existence of a retroactive period and the terms for notifying circumstances that may give rise to a claim.

Which treaties are used

The main form is excess of loss per risk and per event, including protection against simultaneous claims under several policies. For new lines such as cyber liability, insurers use quota share treaties to share uncertainty with the reinsurer. Large D&O and product liability programs are placed facultatively.

Practice in Russia

Compulsory liability lines (OSAGO, OSOPO, OSGOP) have limits and rules set by laws and Bank of Russia regulations, so their reinsurance is built around fixed limits. For OSAGO these are RUB 400,000 for property damage and RUB 500,000 for life and health of each victim. Reinsurance is governed by Article 967 of the Civil Code and Law No. 4015-1; insurers must offer JSC Russian National Reinsurance Company (RNRC), founded by the Bank of Russia, a share of the risks they cede to reinsurance (50% of the ceded obligations as a general rule).

Since 2022, many Russian companies have moved from international D&O and liability programs to policies from Russian insurers, and Western reinsurance capacity for such risks has shrunk. It is being replaced by RNRC, Russian reinsurers and reinsurers from countries that have not joined the sanctions. Particular attention goes to sanctions-related exclusions and claims from foreign jurisdictions.

What matters

  • The definition of "event" and "series loss" in the reinsurance treaty.
  • Defense costs: whether they are included in the limit or paid in addition to it.
  • Indexation of the priority for inflation.

How Polis Re helps

Polis Re specialists help analyze a liability portfolio, select reinsurers and reinsurance intermediaries, agree the basis and structure of protection, and support the placement. Definitions are in the insurance glossary. To discuss your needs, submit a request.