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Loss Portfolio Transfer

A financial reinsurance transaction in which loss obligations that are already incurred and which are expected to ultimately be paid are ceded to a reinsurer. In determining the premium paid to the reinsurer, the time value of money is considered, and the premium is therefore less than the ultimate amount expected to be paid. The difference between the premium paid for the transaction and the amount reserved by the cedent is the amount by which the cedent’s statutory surplus increases. Other terms used in context with Lloyd’s contracts are loss portfolio-rollover and reinsurance to close. Regulations apply to these transactions to ensure that sufficient underwriting risk is transferred by the ceding insurer to the reinsurer. Loss portfolio transfers may be used when an insurer is exiting a line of business, for certain long tail occurrence claims, or in mergers and acquisitions.
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A form of financial reinsurance involving the transfer of loss obligations already incurred that, when ultimately paid, will exceed the consideration paid to the reinsurer for undertaking such obligations. The amount by which the transferred obligations exceed the consideration paid is the resultant increase to the cedant’s statutory surplus.

Loss portfolio transfer (prospective)

Transfer of loss portfolio in respect of claims on the cedant’s future business. The terms are adjustable according to the volume of business. The reinsurance recoveries follow the loss pattern of the cedant. The effect is to transfer liabilities to the balance sheet of the reinsurer in return for a premium reflecting the time value of money with the timing and investment risks being assumed by the reinsurer. The cedant replaces unknown liabilities with a known cost and this helps clean up the balance sheet especially if a merger or acquisition is involved. It is an alternative risk transfer product.

Loss portfolio transfer (retrospective)

Transfer of incurred losses (loss portfolio) from an insurer to a reinsurer who receives a premium based on the net present value of losses, loaded for profit, expenses and timing. The reinsurer invests the premium over the time taken to settle the claims. Transfers allow an insurer to improve financial ratios or exit a line business. It is a finite risk solution. See LOSS PORTFOLIO ENTRY.

Loss Prevention

Activities undertaken to prevent losses from occurring.
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Refers to engineering or inspection activities carried out to prevent losses in the workplace.
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UK: The measures taken to reduce the probability of the occurrence of a loss. Compare with POST-LOSS MINIMISATION.

Loss Prevention Association of India

Way back in the 1970s, there was a growing concern in the general insurance industry about the magnitude of fires, road mishaps, industrial accidents, damage to cargo-resulting in loss of life and property, most of which was avoidable. It was this concern for preventing such losses and containing their consequences that prompted the general insurance industry to promote the Loss Prevention Association of India Ltd. or LPA as it popularly came to be known. Loss Prevention Association of India was set up in January 1978 as a company limited by guarantee, engaged in promotion of safety and loss control through education, training and consultancy. It has emerged as a premier safety organization with multifaceted expertise, having offices at Delhi, Calcutta, Chennai. Hyderabad and Kochi. However, w.e.f. 27th April 2016 it has been amalgamated with GIC Re.