Risks Attaching vs Losses Occurring: Treaty Basis Guide

Risks Attaching vs Losses Occurring: Which Treaty Basis Protects Your Portfolio Better?

Last reviewed: November 2026

Risks attaching vs losses occurring is the choice of which treaty year responds to a loss. Risks attaching covers losses on policies that incept during the treaty period, while losses occurring covers losses that happen during the treaty period, whatever the policy start date.

The choice looks technical, but it decides how long a treaty stays exposed, which panel pays for an event and whether a change of basis leaves a gap or an overlap. Most coverage disputes about attachment basis come from switching between the two without mapping the transition.

This guide is for heads of outwards reinsurance, treaty underwriters, reinsurance accountants and CROs. It explains both bases, when each fits, and how to change basis without losing cover or paying for it twice.

Key Takeaways

• Risks attaching follows the underwriting year of the policy, while losses occurring follows the date of loss.
• A risks attaching treaty on annual policies stays exposed for up to 24 months from inception.
• Losses occurring is the usual basis for catastrophe and per risk excess of loss, because one event falls into one treaty year.
• Switching from losses occurring to risks attaching can leave in-force policies uncovered unless the transition is managed.
• Switching from risks attaching to losses occurring can create an overlap where the cedent pays premium twice for the same exposure.
• Clean cut and run-off provisions decide how each treaty ends, and they must be chosen deliberately at every basis change.

What Is the Difference Between Risks Attaching and Losses Occurring?

The difference is the trigger that connects a loss to a treaty year. Under risks attaching, the trigger is the inception date of the underlying policy, and under losses occurring, it is the date of the loss.

The key insight is that the two bases measure the same losses on different clocks. Every change of basis forces the cedent to decide which clock applies to the policies already in force.

How Does a Risks Attaching Treaty Work?

A risks attaching treaty covers every policy that incepts or renews during the treaty period, for the full life of that policy. Losses are covered whenever they happen, provided the policy attached to the treaty.

This matches the reinsurance to the business actually written. It is why most proportional treaties, such as quota shares and surplus treaties, use this basis.

Why Does Risks Attaching Run for 24 Months?

A risks attaching treaty covering annual policies is exposed for almost two years. A policy that incepts on the last day of the treaty year still has twelve months to produce a loss.

Longer policy terms extend this further. Construction, engineering and some specialty policies can run for several years, keeping the treaty exposed long after its own period ends.

What Are the Advantages for Cedents?

The cedent knows that every policy written in the year is reinsured on the same terms for its full life. Pricing, commission and capacity follow the underwriting decisions made under that treaty.

It also aligns reinsurance with underwriting year accounting. Profit commissions and loss participation clauses can be calculated on a clean underwriting year basis.

How Does a Losses Occurring Treaty Work?

A losses occurring treaty covers losses that happen during the treaty period, regardless of when the underlying policy started. When the treaty expires, it stops responding to new losses.

This gives a clear answer to the question that matters most in a catastrophe: which treaty pays for this event? The date of the event decides, and only one treaty year responds.

Why Is Cat XoL Usually Losses Occurring?

Catastrophe excess of loss is usually written on a losses occurring basis because the cover protects against events. One storm should hit one retention and one limit.

If a cat layer were written on a risks attaching basis, a storm early in the year would hit policies written in two underwriting years. The event loss would then be split across two treaties, two panels and possibly two retentions.

Unless the wordings say otherwise, each treaty would apply its own retention to its share of the loss. The cedent could retain far more than it expected from a single event.

What About Long-Tail Liability Classes?

Losses occurring on casualty business depends on how the underlying policy defines when a loss occurs. Latent injury and long-tail claims can make the date of loss hard to fix.

For that reason, some liability programmes use claims made or losses discovered bases instead. The reinsurance basis should match the trigger in the underlying policies wherever possible.

Worked Example: Run-Off Timing and a Change of Basis

The example below is illustrative and simplified. All figures are in USD millions, and the cedent writes annual policies evenly through each year.

Which Treaty Year Pays Each Loss?

Loss C shows the run-off tail. It hits the 2026 risks attaching treaty almost two years after that treaty incepted.

What Happens When the Basis Changes?

Setup: the cedent writes 120 of gross premium each year on annual policies, evenly through the year. It cedes 40% under a quota share and expects a 60% loss ratio on earned premium.

Because policies are written evenly, half of each year's premium earns in the year written and half in the following year.

Now change the basis at 1 January 2027 without arranging the transition.

In the first scenario, 36 of losses fall between two treaties. At a 40% cession, the cedent loses 14.4 of expected recoveries, half of what it expected to collect for 2027.

In the second scenario, recoveries are not doubled, because the cedent can only recover its loss once. The overlap shows up in premium instead.

The fix for a move to risks attaching: either let the old losses occurring treaty run off on in-force policies, or have the new treaty assume the in-force portfolio. In this example, an unearned premium portfolio entry of 60 × 40% = 24 transfers the in-force exposure to the new treaty.

The fix for a move to losses occurring: either cut off the old treaty with an unearned premium portfolio withdrawal at 31 December 2026, or exclude policies already covered by the old treaty from the new one.

The lesson: a change of basis is not a wording edit. It is a transfer of in-force exposure, and it needs a portfolio decision, a premium adjustment and a loss allocation rule agreed before inception.

When Should You Use Risks Attaching or Losses Occurring?

Use risks attaching when reinsurance should follow the business written. Use losses occurring when it should follow events.

Mixed programmes are common and workable. A quota share on risks attaching can sit beneath a cat XoL on losses occurring, provided recoveries are mapped across treaty years.

Which Mistakes Cause Gaps and Overlaps?

Six mistakes cause most attachment-basis problems. Each one surfaces months after the renewal, when the first large loss arrives.

How Should Teams Manage a Change of Basis?

Treat a change of basis as a project with its own data, decisions and sign-off. The steps below apply whichever direction the change goes.

Implementation Steps

1. Extract the in-force portfolio at the transition date, with inception, expiry, premium and unearned premium by policy.
2. Decide run-off or clean cut for the old treaty, and agree the portfolio withdrawal and entry percentages.
3. Price the transition so the new panel is paid for any in-force exposure it assumes.
4. Align wordings so the old treaty's exclusion and the new treaty's inclusion describe exactly the same policies.
5. Set the loss allocation rule for losses on in-force policies, especially for events that straddle the transition.
6. Update systems so the treaty year logic for premium, claims and bordereaux follows the new basis.

What Data Should Reinsurers Request?

These issues are a common source of the cover gaps we discuss in coverage gaps between layers. Premium errors at transition also feed ceded premium leakage.

How Does the Basis Affect Accounting and Capital?

The attachment basis changes the coverage period, recognition timing and contract boundary of reinsurance held. Reinsurance accounting and capital teams must reflect it explicitly.

IFRS 17

Under IFRS 17, a risks attaching treaty on annual policies usually has a coverage period of up to 24 months. Premium allocation approach eligibility must therefore be tested, rather than assumed.

Recognition timing also differs. Reinsurance held that provides proportionate coverage is generally recognised no earlier than the initial recognition of the first underlying contract it covers, while other reinsurance held is recognised from the start of its coverage period.

Solvency II

Under the Solvency II Delegated Regulation, reinsurance recoverables are valued within the boundary of the reinsurance contract. For a risks attaching treaty, the cedent must decide which cash flows fall within that boundary, including cover for underlying policies not yet written at the valuation date.

Inconsistency between the reinsurance contract boundary and the underlying business boundary can distort both technical provisions and the SCR. Supervisory guidance from EIOPA and local regulators should be checked for current expectations.

Does the Same Logic Apply to Retrocession?

Yes, and the effect is amplified. A reinsurer that buys retro on a losses occurring basis while writing assumed business on a risks attaching basis carries a structural mismatch.

An event in year two can hit assumed treaties from two underwriting years, while the retro programme responds only for the year of the event. That mismatch should be modelled explicitly, not discovered after the loss.

What Does the Market Look Like for 2027 Renewals?

With capacity returning after the 2023 reset, some cedents are using the softer market to restructure programmes. Restructuring often includes changing attachment bases or aligning quota share and excess of loss years.

Those changes are most dangerous when negotiated late in a renewal. Agree the transition mechanics early, and make sure the wordings, systems and bordereaux reflect them from day one.

Checklist for Heads of Outwards Reinsurance

Use this checklist whenever you renew, restructure or change the basis of a treaty.

• The attachment basis of every treaty in the programme is documented
• Quota share and excess of loss recoveries are mapped across treaty years where bases differ
• Any change of basis has a documented run-off or clean cut decision
• Portfolio entry and withdrawal percentages are agreed and priced
• Old and new wordings describe the same transition policies consistently
• Policies longer than twelve months are identified and their run-off tracked
• IFRS 17 coverage period and recognition timing are confirmed for each treaty
• Treaty year allocation runs on a controlled system, not spreadsheets

A centralised reinsurance treaty management platform holds the basis, period and terms of every treaty in one place. Bordereaux reconciliation then checks that premiums and claims were allocated to the right treaty year.

Key Terms

Risks attaching during (RAD): A treaty basis covering losses on policies that incept during the treaty period, whenever the loss occurs.

Losses occurring during (LOD): A treaty basis covering losses that happen during the treaty period, whatever the policy inception date.

Underwriting year: The year in which the underlying policy incepted, used to group business under risks attaching treaties.

Accident year: The year in which a loss occurred, used to group losses under losses occurring treaties.

Clean cut: An approach that ends the reinsurer's liability at a set date by transferring unearned premium and outstanding losses to the next treaty.

Run-off basis: An approach where the reinsurer stays liable for covered policies until they expire and all losses are settled.

Portfolio entry and withdrawal: The transfer of unearned premium, and sometimes outstanding losses, into or out of a treaty at the start or end of its period.

Claims made basis: A treaty basis covering claims first made during the treaty period, common in some liability classes.

Sources

• IFRS 17 Insurance Contracts, IFRS Foundation
• Commission Delegated Regulation (EU) 2015/35 (Solvency II)
• EIOPA: Solvency II resources