Adjustment premium
The premium top-up computed at period end when the actual base exceeds the one used for the deposit.
Textbook case: a declared base of 212 million euros against 180 forecast, at a 3.1% rate, gives a final premium of 6.57 million. With 5.58 million already paid as deposit, the adjustment premium due is 990,000 euros. An adjustment premium is the balance the cedant owes on a non-proportional treaty. It arises when the actual base, known only after close, exceeds the projected base used to calculate the minimum and deposit premium. The contractual rate is applied to the reported base, and what has already been paid is deducted. The mechanism prices an exposure nobody knows when the contract incepts. A treaty covers a portfolio that will grow or shrink over twelve months. Fixing the final premium up front would overcharge a shrinking cedant or undercharge a fast-growing one. Adjustment restores proportionality between exposure and premium. It imposes reporting discipline: the cedant must produce the base within the contractual deadline, usually ninety days after close. If it fails to report, the reinsurer estimates the base unilaterally, almost always in its own favor.
A motor cedant reports a 2026 base of 212 million euros against 180 million projected. At the contractual rate of 3.1 percent the final premium is 6.57 million, of which 5.58 million has already been paid as minimum and deposit premium. The adjustment premium due is 990,000 euros, payable within sixty days. A late report would have let the reinsurer apply a deemed base of 230 million.
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.