There are two pooling systems available
Each year any negative balance in the multinational profit & loss account is absorbed by the participating insurance companies.
- Loss carryforward
Any negative balance in the multinational profit & loss account is transferred to the next year’s account.
To prevent a deficit, the client pays a reinsurance premium. The reinsurance premium is higher on the Stop Loss system than on the Loss Carry Forward system, as the Loss Carry Forward system allows the insurer the option to ”catch up” on a possible deficit from previous years. The higher the volume, the lower the reinsurance premium.
A surplus is created if the risk premium exceeds the claims. The balance of the positive results for a company's subsidiaries is payable to the parent company as a multinational dividend. The parent company determines the distribution of the local dividend.