Policy Special Conditions

Policy special conditions are financial structures that apply to only a subset of locations within a policy. They apply after all location terms, but before any blanket policy terms or layer terms. As well as the deductibles and limits for conditions which begin with ‘Cond’ and follow the same field name convention as for location and policy terms, there are the following required fields:

In the OED location and account file:

• CondTag identifies the locations that a condition applies to in the locations file, and links them to the condition terms in the account file.

In the OED account file:

• CondNumber identifies a unique set of financial terms of the condition

• CondPeril identifies the perils that the condition applies to

• CondPriority identifies the order in which special conditions apply in case more than one condition applies to the same locations.

Optionally in the OED account file;

• CondName is a descriptive field for the condition

• CondClass can be used to specify a policy restriction condition

CondTag

The scope of each special condition is specified using a CondTag on each location in the location input file that corresponds with the CondTag in the account input file. This field is normally a meaningful string describing the scope of the condition, such as ‘California’.

Example 1 - a California sub-limit

OED Location file:

AccNumber	LocNumber	CountryCode	AreaCode	CondTag
Acc1	Loc1	US	CA	California
Acc1	Loc2	US	CA	California
Acc1	Loc3	US	IN
Acc1	Loc4	US	NV

The CondTag is also included in the accounts file for the policies the condition applies to.

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondLimit6All
Acc1	Pol1	California	1	10,000,000

In this example, a ‘sub-limit’ of $10,000,000 applies to the combined loss for locations 1 and 2 in California. This applies after any location terms specified and before any policy terms which apply to all locations under the account.

Some example ground up losses are as follows;

Example losses:

AccNumber	LocNumber	CountryCode	AreaCode	Ground up loss
Acc1	Loc1	US	CA	5,000,000
Acc1	Loc2	US	CA	7,000,000
Acc1	Loc3	US	IN	0
Acc1	Loc4	US	NV	4,000,000

The policy loss for an earthquake affecting California and Nevada in this scenario would be $14,000,000 due to the California losses being limited to $10,000,000.

It is common to have multiple conditions on a policy, applying to different groups of locations. When this is the case, the policy record in the account file must be duplicated for each different CondTag on the locations, as demonstrated in the next example.

CondNumber

The set of financial terms for each condition is identified by the CondNumber field in the account file.

For each policy in the account file, the financial terms identified by the CondNumber will be applied to the locations under the scope defined by each CondTag.

In Example 2, CondNumber 1 is a $10,000,000 sub-limit applies to California losses and CondNumber 2 is a $15,000,000 sublimit for losses in the New Madrid region.

CondNumber is normally a policy condition reference number, and may be numeric or alphanumeric. An optional field CondName can be used to describe the condition in meaningful terms.

Note that although these types of conditions are referred to as sub-limits, they can be any combination of the regular types of financial terms such as deductibles, min and max deductibles, and limits.

Example 2 - a California sub-limit and a New Madrid sub-limit

OED Location file:

AccNumber	LocNumber	CountryCode	AreaCode	CondTag
Acc2	Loc1	US	CA	California
Acc2	Loc2	US	CA	California
Acc2	Loc3	US	IN	New Madrid
Acc2	Loc4	US	NV

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondLimit6All	CondName
Acc2	Pol1	California	1	10,000,000	CA sub-limit
Acc2	Pol1	New Madrid	2	15,000,000	NM sub-limit

In this example, a sub-limit of $10,000,000 will apply to the sum of losses from locations 1 and 2 for an earthquake in the California area, and a sub-limit of $15,000,000 will apply to the loss from Indiana location 3 from an earthquake in the New Madrid region, before any policy terms.

No sub-limits apply to losses for the Nevada location 4, because it is not subject to any condition (CondTag field is blank).

CondPeril

Commonly, sub-limit conditions are peril-specific as well as region-specific. The CondPeril field specifies which perils the condition applies to. This can be a single peril code, or a string of peril codes separated by semi-colons.

CondPeril must always be included in the account file whenever there are conditions, and it must be filled in with the appropriate peril codes.

For example, a California earthquake sub-limit may be specified as follows;

Example 3 - California earthquake sub-limit

OED Location file

AccNumber	LocNumber	CountryCode	AreaCode	CondTag	LocPerilsCovered
Acc3	Loc1	US	CA	California	OO1;QQ1
Acc3	Loc2	US	CA	California	OO1;QQ1
Acc3	Loc3	US	IN		OO1;QQ1
Acc3	Loc4	MX	02		OO1;QQ1

The LocPerilsCovered field specify that each location in the account is subject to ‘All flood perils’ and ‘All earthquake perils’.

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondLimit6All	PolPerilsCovered	CondPeril
Acc3	Pol1	California	1	10,000,000	OO1;QQ1	QQ1

The PolPerilsCovered field specifies that the policy is subject to ‘All flood perils’ and ‘All earthquake perils’.

However the CondPeril field specifies that the condition is subject to ‘All earthquake perils’ only.

This means that the sub-limit will only apply to losses arising from earthquake perils on the policy.

Nested hierarchal conditions

In the above examples with multiple conditions, each condition applied to a different group of locations.

There can also be multiple sub-limits that apply to the same location in a nested hierarchy.

An example of this might be a US Wind sub-limit with nested state-level sub-limits, say for Florida and Texas, on an account covering global locations.

We must ‘tag’ all of the locations for each condition that applies to them by adding more records in the locations file.

Example 4 - nested hierarchal conditions

OED Location file:

AccNumber	LocNumber	CountryCode	AreaCode	CondTag
Acc4	Loc1	US	FL	Florida
Acc4	Loc1	US	FL	US
Acc4	Loc2	US	FL	Florida
Acc4	Loc2	US	FL	US
Acc4	Loc3	US	TX	Texas
Acc4	Loc3	US	TX	US
Acc4	Loc4	US	LA	US
Acc4	Loc5	MX	02

We have two location records for Locations 1,2 and 3, with a CondTag for the ‘Florida’ or ‘Texas’ sub-limits and a second CondTag ‘US’ for the US wind sub-limit. Location 5 is outside the scope of all conditions.

In the account file, we have policy record for each condition: Florida, Texas and US sub-limit.

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondLimit6All	CondName	CondPeril	CondPriority
Acc4	Pol1	Florida	1	10,000,000	FL sub-limit	WW1	1
Acc4	Pol1	Texas	2	5,000,000	TX sub-limit	WW1	1
Acc4	Pol1	US	3	12,500,000	US sub-limit	WW1	2

The Florida and Texas sub-limits apply first, and the US sub-limit applies second. This would result in any combined losses from Florida and Texas exceeding the US sub-limit being limited to $12,500,000. Then policy terms would apply to the sum of limited US locations and the rest of world locations.

Example losses:

AccNumber	LocNumber	CountryCode	AreaCode	Ground up loss
Acc4	Loc1	US	FL	5,000,000
Acc4	Loc2	US	FL	6,000,000
Acc4	Loc3	US	TX	7,000,000
Acc4	Loc4	US	LA	1,000,000
Acc4	Loc5	MX	02	0

The Florida sub-limit applies to the losses from Locations 1 and 2 and limits them to $10,000,000. The Texas sub-limit limits the Location 3 loss to $5,000,000.

The US sub-limit applies to the sum of the limited state level losses of $10,000,000 and $5,000,000, and the $1,000,000 loss from Location 4 which is only subject to the US sub-limit . The total gross loss before policy terms is $12,500,000.

The Florida and Texas sub-limits can be referred to as ‘child’ conditions, with the US sub-limit referred to as the ‘parent’ condition.

‘Nested’ means that all locations in the child sub-limit regions also belong to the parent sub-limit region. There may be locations belonging to the parent sub-limit region but not any child sub-limit region.

It is possible to represent an unlimited number of hierarchal levels in OED, but in practice the number of hierarchal levels rarely exceeds two.

CondPriority

When there are hierarchal conditions as in the example above, it is necessary to specify the order in which the conditions apply. CondPriority is an integer field in the accounts file which specifies the relative order in which the conditions apply.

In the previous example, the value in the CondPriority field is equivalent to the hierarchal level of each condition.

However in practice, where there are many children conditions, there is often an overall ranking or priority assigned to each condition regardless of whether there is a hierarchy or not.

Example 5 - parent and child conditions

OED Location file:

AccNumber	LocNumber	CondTag
Acc5	Loc1	child1
Acc5	Loc1	parent
Acc5	Loc2	child2
Acc5	Loc2	parent
Acc5	Loc3	child3
Acc5	Loc3	parent
Acc5	Loc4	parent
Acc5	Loc5

The location file must have two records for each location subject to a child condition and the parent condition. Locations 1-3 all appear twice in the locations file with two different CondTags and are part of the nested hierarchal conditions.

Location 4 is subject to the parent condition only so it appears only once.

Location 5 appears once and is outside of the hierarchy with no conditions, and its loss is carried into the policy terms with no sub-limits applied.

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondLimit6All	CondName	CondPriority
Acc5	Pol1	child1	1	10,000,000	child1	1
Acc5	Pol1	child2	2	5,000,000	child2	2
Acc5	Pol1	child3	3	5,000,000	child3	3
Acc5	Pol1	parent	5	20,000,000	parent	4

The relative values of CondPriority between the child conditions do not matter when the conditions apply to non-overlapping groups of locations. All that matters is that the relative value of the CondPriority of the parent condition is greater than the value of CondPriority of each of the child conditions.

Hierarchal conditions are only recognised by the presence of duplicate locations in the locations file, and not by the values in CondPriority or the descriptions of the conditions in CondName.

It is only when the same location appears twice in the location file with different CondTag values that the relative values of CondPriority will be used to determine the order in which the conditions apply. CondPriority is disregarded in the case that there are multiple non-overlapping conditions.

Policy restrictions

In all of previous examples, the conditions have been ‘sub-limit’ types, where the set of financial terms apply to the locations which are assigned a particular CondTag. This is the default case and it does not need to be explicitly specified.

For accounts with multiple locations, the default assumption is that if there is more than one policy on the account, then every policy applies to every location in the account.

However, policies on an account can sometimes have certain locations excluded. Policy restrictions are specified in OED using the CondClass field.

CondClass

Policy restrictions are implemented as an alternative classification of special conditions which can be specified by the CondClass field in the account file. A value of 1 means ‘Policy restriction’, otherwise the default value of 0 (sub-limit) is assumed.

The difference between them is what happens to losses for locations under the account that do not have a CondTag.

• When the condition is a sub-limit - the locations that have no CondTag will still contribute loss to the policy on the account.

• When the condition is a policy restriction - the locations that have no CondTag will not contribute loss to the policy on the account.

There are usually no financial terms such as limits or deductibles that apply in policy restrictions. A policy restriction is normally only used to exclude locations from contributing to a policy.

Next is an example which excludes Florida locations from the policy.

Example 6 - Single policy restriction

OED Location file:

AccNumber	LocNumber	CountryCode	AreaCode	CondTag
Acc6	Loc1	US	NC	366
Acc6	Loc2	US	NC	366
Acc6	Loc3	US	FL
Acc6	Loc4	US	TX	366

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondName	CondClass
Acc6	Pol1	366	366450	EXCL FL LOCS	1

Only Locations 1, 2, and 4 are subject to the policy terms and Florida location 3 is excluded.

Example losses:

AccNumber	LocNumber	CountryCode	AreaCode	Ground up loss
Acc6	Loc1	US	NC	4,000,000
Acc6	Loc2	US	NC	2,000,000
Acc6	Loc3	US	FL	20,000,000
Acc6	Loc4	US	TX	10,000,000

The policy restriction means that the Florida loss is excluded, The gross loss is the sum of losses from the non-Florida locations which is $16,000,000.

Conditions on multi-policy accounts

When there are multiple policies on an account, conditions can be symmetric (same conditions apply to all policies) or assymmetric (different conditions per policy).

Continuing the regional sub-limit example 2, we can add a second excess policy to the account with the same conditions.

Example 7 - Symmetric policy conditions

OED Location file:

AccNumber	LocNumber	CountryCode	AreaCode	CondTag
Acc7	Loc1	US	CA	California
Acc7	Loc2	US	CA	California
Acc7	Loc3	US	IN	New Madrid
Acc7	Loc4	US	NV

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondLimit6All	LayerAttachment	LayerLimit
Acc7	Pol1	California	1	10,000,000	0	10,000,000
Acc7	Pol1	New Madrid	2	5,000,000	0	10,000,000
Acc7	Pol2	California	1	10,000,000	10,000,000	15,000,000
Acc7	Pol2	New Madrid	2	5,000,000	10,000,000	15,000,000

Some layer terms are added to distinguish between Pol1 and Pol2. This is an example where conditions are symmetric across policies.

Example losses:

AccNumber	LocNumber	CountryCode	AreaCode	Ground up loss
Acc7	Loc1	US	CA	5,000,000
Acc7	Loc2	US	CA	7,000,000
Acc7	Loc3	US	IN	0
Acc7	Loc4	US	NV	4,000,000

Pol1: California losses are limited to $10,000,000. Loss before layer terms = $14,000,000. Gross loss after layer limit = $10,000,000

Pol2: California losses are limited to $10,000,000. Loss before layer terms = $14,000,000. Gross loss after layer attachement and limit = $4,000,000

Example 8 - Asymmetric policy conditions

Policies may be defined to apply to different locations within an account. When this is the case, policy restrictions can be used to specify the exclusion of different locations from each policy. This leads to assymmetric policy conditions.

In this example, a policy restriction is used to exclude location 4 from policy A. In addition, a normal sub-limit applies to a location in policy A. The sub-limit is applied as priority 1, and the restriction as priority 2.

Policy B covers all 4 locations without the sub-limit.

OED Location file:

AccNumber	LocNumber	CondTag
Acc8	Loc1	PolA
Acc8	Loc2	Sublimit_400k
Acc8	Loc2	PolA
Acc8	Loc3	PolA
Acc8	Loc4

OED Account file:

AccNumber	PolNumber	CondTag	CondNumber	CondPriority	CondClass	CondLimit6All
Acc8	PolA	Sublimit_400k	1	1	0	400,000
Acc8	PolA	PolA	2	2	1
Acc8	PolB

Example losses:

AccNumber	LocNumber	Ground up loss
Acc8	Loc1	800,000
Acc8	Loc2	1,000,000
Acc8	Loc3	500,000
Acc8	Loc4	300,000

PolA: Location 2 is limited to $400,000. Location 4 is excluded. Gross loss before policy terms = $800k + $400k + $500k = $1,700,000

PolB: All location losses are included. Gross loss before policy terms = $800k + $1000k + $500k + $300k = $2,600,000

For each specified CondTag in the locations file, there must be least one associated policy condition in the accounts file, and vice versa. In other words, there must not be any CondTags in the one file not appearing in the other file.

Finally, below are some examples of sub-limits in combination with other policy terms.

We show two examples, firstly where the sub-limits are not nested and secondly where the sub-limits are nested.

Example 9 – Commercial lines – multiple locations per policy with location and policy deductibles but with a sub-limit for tier 1 wind

The tables below show an example of a commercial portfolio with 1 account containing 6 locations. The policy covers earthquake and wind with the same overall policy limit for both perils. However, for certain locations two different sub-limits apply for wind (e.g. Florida wind sub-limit and Texas wind sub-limit).

OED Location file:

AccNumber	LocNumber	BuildingTIV	LocDedType1Building	LocDed1Building	CondTag
Acc9	1	1,000,000	0	10,000	1
Acc9	2	1,000,000	2	0.01	1
Acc9	3	1,000,000	1	0.05	2
Acc9	4	2,000,000	0	15,000	2
Acc9	5	2,000,000	0	10,000
Acc9	6	2,000,000	2	0.10

OED Account file:

AccNumber	PolNumber	PolPerilsCovered	PolLimit6All	CondTag	CondNumber	CondPriority	CondPeril	CondLimit6All
Acc9	1	QQ1;WW1	1,500,000	1	1	1	WW1	250,000
Acc9	1	QQ1;WW1	1,500,000	2	2	1	WW1	500,000

Example 10 – Commercial lines – multiple locations per policy with location and policy deductibles with nested hierarchal sub-limits for wind

If two special conditions are nested or overlap (e.g. Texas tier 1 wind sub-limit of 250,000 (CondNumber = 1) and Texas overall wind sub-limit of 500,000 (CondNumber = 2)), the tables would be specified as shown below. The example below assumes that locations 1 and 2 are in the Texas tier 1 region, locations 3 and 4 are within Texas but not in the Tier 1 wind region, and locations 5 and 6 are outside Texas.

OED Location file:

AccNumber	LocNumber	BuildingTIV	LocDedType1Building	LocDed1Building	CondTag
Acc10	1	1,000,000	0	10,000	1
Acc10	1	1,000,000	0	10,000	2
Acc10	2	1,000,000	2	0.01	1
Acc10	2	1,000,000	2	0.01	2
Acc10	3	1,000,000	1	0.05	2
Acc10	4	2,000,000	0	15,000	2
Acc10	5	2,000,000	0	10,000
Acc10	6	2,000,000	2	0.10

OED Account file:

AccNumber	PolNumber	PolPerilsCovered	PolLimit6All	CondTag	CondNumber	CondPriority	CondPeril	CondLimit6All
Acc10	1	QQ1; WW1	1,500,000	1	1	1	WW1	250,000
Acc10	1	QQ1; WW1	1,500,000	2	2	2	WW1	500,000