Definition of Adjustable Feature
Adjustable Feature refers to the contract language or terms of agreement that allow room for adjustments in the premium or commission features of a reinsurance treaty.
Brief Explanation of Adjustable Feature
This may include adjusting ratings or sliding scale commissions. The formulas applied to adjust premiums and commissions’ are agreed upon before the sealing of the original contract. Most insurance companies are accountable for the risk that most adjustable features carry with them including the timing and amount if cash flow between the reinsurer and the reinsured. The fact that adjustable features take into account the loss experience reinsurers are liable to consider future rights and obligations’ for past claims. Moreover, in order to make estimates insurance companies examine the risk factors and occurrence of each preconceived outcome and it’s how reasonable each outcome may prove to be. Often these estimates are calculated by using financial models considering the overall cash flow between the reinsurer and the reinsured. Many times the insurance that use reinsurers often have interlinked contracts which implies that the performance and adjustable features of any one contract would eventually determine the results of the other.