Experience account
A notional account tracking a finite treaty's premiums, losses and interest, whose balance returns to the cedant.
The experience account is the central accounting mechanism of finite reinsurance. It is credited with premiums paid and agreed interest, debited with losses settled and the reinsurer's margin, and its balance sets what the cedant recovers at the treaty's end. It has no separate legal existence, but it is what makes the deal legible to both parties. It settles the question of what was not consumed: in a classical treaty the premium paid stays earned by the reinsurer even if no loss occurs, and the cedant pays for a risk that did not materialize. The experience account reverses that logic. The premium becomes an interest-bearing deposit, of which only the part actually consumed stays earned. The same mechanism makes these treaties suspect on risk transfer. The more complete the return, the less reinsurance there is, and a transfer analysis looks first at two parameters: the interest crediting rate and the reinsurer's loss cap.
A 2026 finite treaty credits 12 million euros of annual premium at 2.8 percent over five years, and debits a 4 percent annual margin. Over the period, losses settled reach 31 million. The experience account shows a closing balance of 21.7 million, returned to the cedant. The real cost of the cover to it is therefore the margin plus forgone interest, about 12.4 million over five years.
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.