CDL Covers

Covers have a share, payout function, and attachment. Each of these has its own amount. The order of operations is attachment, payout, share.

Attachment

Normally, loss above the attachment is eligible for the payout function. In other words, if the subject loss of the cover is S, and the attachment is A, max(S-A,0) is eligible to flow through the payout function and the share.

An option on the attachment is for it to be a franchise. In that case, it acts more like a trigger. If the subject loss is below the attachment, the cover produces 0 recoverable as usual. However, if the subject loss meets the attachment, the entire subject loss is eligible for the payout function.

Payout

Payout function is usually simply the limit function. If E is the eligible flow net of attachment, and L is the limit, then the payout P using a limit is simply min(E,L). The payout can also be a constant (Pay 10M xs 5M), which produces a constant payout in any event that satisfies the attachment.

Share

The share applies last and is simply a percentage that gets applied to the payout to form the final recoverable (R) of the cover.

Read next: CDL Terms