A reinsurance contract specifies its period of effect: date of inception and date of termination. But the period during which the treaty produces its effects is not to be confused with the period of coverage. The period of coverage determines the period during which the Reinsurer will be responsible for the claim in respect with the policies or risks ceded during the period of effect of the treaty. This period of coverage might be loss occurring, risk attaching or accounting year.
“Loss occurring” treaty means that the Reinsurer only pays the Ceding party for all losses incurred during the reinsurance contract period, regardless of when the policy's insurance generated the losses.
Let’s take an example:
Reinsurance based on loss may be triggered for claims that are notified many years later. For instance, if an employer is found liable due to damages suffered by an employee who was exposed to asbestos many years ago.
As a consequence, with a loss occurring basis contract, the Reinsurer may be entitled to pay for many years, even after the termination of the treaty.