A method of transferring unexpired liability from one year to another.
Thus, if one reinsurer is to be relieved of its liability under a treaty at the end of the treaty year, it will be debited with an amount representing the Unearned Premium in the last account of the year. The new reinsurer who takes over the business for the subsequent year is credited with the premium which has thus been withdrawn from the previous reinsurer.
The effect of this transaction is to release the previous reinsurer from any liability in respect of the unexpired portion of the risks which were accepted in the preceding year and the new reinsurer accepts this liability. Thus the new reinsurer assumes liability for all claims which might arise in the current year on the running off of the old risks.