What are the different types of reinsurance treaties?
The different types of reinsurance treaties are facultative reinsurance, where individual risks are negotiated separately, and treaty reinsurance, which includes automatic reinsurance of a portfolio of risks and is divided into proportionate (e.g., quota share, surplus) and non-proportionate (e.g., excess of loss, stop loss) types.
How does a reinsurance treaty work?
A reinsurance treaty is a contractual agreement between an insurer and a reinsurer, where the reinsurer agrees to cover a portion of the insurer's risk portfolio. This spread of risk is automatic and applies to all policies within the scope of the treaty, providing the insurer with financial protection against significant losses.
What are the benefits of reinsurance treaties for primary insurers?
Reinsurance treaties offer primary insurers financial stability by spreading risk, enhancing their capacity to underwrite more policies. They provide capital relief, improve solvency margins, and enable insurers to manage catastrophic losses. Additionally, they offer expertise and consultation, benefiting underwriting processes and strategic planning.
What risks do reinsurance treaties typically cover?
Reinsurance treaties typically cover risks such as catastrophic events, like natural disasters (e.g., earthquakes, hurricanes), large-scale industrial accidents, and large liability claims. They also cover insurer insolvency, underwriting risks, and significant fluctuations in claims, thereby providing stability to the primary insurer's financial exposure.
How are reinsurance treaties negotiated and structured?
Reinsurance treaties are negotiated based on the cedent's specific needs, historical data, risk assessment, and financial objectives. They are structured through agreements that define terms like coverage limits, premium rates, loss sharing, exclusions, and duration. Typically, negotiations involve cedents, reinsurers, and brokers using well-defined models and risk analysis.