Cyclone event: reserving, reinsurance recovery and solvency at day 45

Build the estimate by component, not by scaling the reported figure.

• Large claims, adjusted individually. The ₹182 crore steel plant claim is subject to the average clause: 310/365 = 0.849, so ₹154.5 crore before the warranty argument. If the hydrant warranty is a condition precedent, assume a high but not certain payment probability (say 90%) and disclose the 0 to 154.5 range. The other two large claims at ₹98 crore and ₹76 crore get a modest 10% uplift for surveyor findings and reinstatement escalation.
• Notified small claims of ₹256 crore. After a windstorm, roughly 65 to 70% of small-claim value is normally reported by day 45, so a development factor of 1.45 gives ₹371 crore.
• Ultimate ≈ 154.5 + 98 + 76 + 371 = ₹700 crore. Less the ₹612 crore reported, this leaves about ₹88 crore of IBNR and development, plus claim handling costs held separately.
• The catastrophe model's ₹540 crore is a portfolio 1-in-100 view and cannot see this concentration in three coastal industrial risks, demand surge, or repair-cost inflation. Use it as a floor and cross-check, not as the central estimate.
• Risk adjustment under Ind AS 117: set at roughly the 70th to 75th percentile of the outcome distribution, about ₹50 to ₹60 crore (7 to 8% of the ultimate), driven by the warranty and average-clause uncertainty. Discounting is immaterial for a short-tail event settling in about 24 months, but say so explicitly rather than ignoring it.
• Keep the case estimates for the three large claims separate from the statistical IBNR so the auditor and the Appointed Actuary can challenge them independently, and document the notification-lag evidence supporting the 1.45 factor.

Work through the programme in order: quota share first, then catastrophe excess of loss on the retained line.

• ₹154.5 crore claim: 40% ceded = 61.8; retained 92.7. The ₹150 xs ₹50 layer responds for 42.7.
• ₹98 crore claim: ceded 39.2; retained 58.8; XL recovery 8.8.
• ₹76 crore claim: ceded 30.4; retained 45.6; XL does not attach.
• Small claims: 60% of ₹371 crore = ₹222.6 crore retained.
• Large claims retained before XL: 92.7 + 58.8 + 45.6 = ₹197.1 crore. XL recovery ₹51.5 crore leaves ₹145.6 crore. Total net ≈ 145.6 + 222.6 = ₹368 crore.
• The single reinstatement is triggered: additional premium = (51.5/150) × XL deposit premium. At a ₹18 crore deposit that is about ₹6.2 crore, taking the net to roughly ₹374 crore.
• If the steel plant claim later develops, further XL recovery is available until the reinstated limit is exhausted, so net IBNR is much smaller than gross. Flag the reinstated limit as effectively the binding constraint on a second event.

Solvency advice. The projected 1.41 against a 1.50 control level is a breach. On a required margin of about ₹1,050 crore that is roughly a ₹95 crore shortfall. Options: inject about ₹100 crore of capital; buy a second-event cover or an aggregate stop-loss; cut new coastal commercial exposure; and negotiate a commutation or funds-withheld arrangement with the reinsurer. Stress-test the reinsurance recoverable for credit risk and apply a haircut, do not take full credit in the solvency calculation, and brief the board that the reinstatement premium itself consumes capital.

Treat the event as evidence about the portfolio, not just as a reserving problem.

• Average clause and sum insured. The steel plant was under-insured by 15%. For large industrial risks, require a professional reinstatement valuation at inception and each renewal; consider an agreed-value or margin clause (for example a 15% tolerance) priced explicitly rather than relying on a punitive average clause after a loss.
• Warranties. The hydrant warranty is likely to be disputed. Rewrite warranties so the consequence of breach is stated unambiguously, require a self-certified risk improvement schedule with a date, and price a discount for compliance rather than depending on a technical defence. Legal review of the wording before renewal.
• Capacity and concentration. Set a maximum foreseeable loss survey for every coastal industrial park site, apply per-location and per-event aggregate limits, and cap aggregate coastal exposure as a percentage of the catastrophe load the company can retain.
• Reinsurance structure. One reinstatement was inadequate. Price a second reinstatement at 50% or buy a top-and-drop or aggregate cover, and re-examine whether the 40% quota share is efficient given that it cedes good small-claim business while leaving most of the severe tail inside the retained line.
• Pricing. Re-tariff coastal wind for the modelled event and apply a catastrophe load per location, not a portfolio average. Present the board with the return period implied by the retained ₹50 crore retention against the company's risk appetite.