Types of Reinsurance

There are 2 principal forms of insurance

Facultative Treaty

Facultative Reinsurance
It is an optional, case-by-case method that is used when the ceding company receives an application for insurance that exceeds its retention limited.

Facultative Reinsurance
It is frequently used when large amount of insurance is desired. Before the application is accepted, the primary insurer determines whether reinsurance can be obtained. If available, the policy can then be written.

Treaty Reinsurance
It means the primary insurer has agreed to cede insurance to the insurer, and the reinsurer has agreed to accept the business.

Treaty Reinsurance
Advantages to the primary insurer
No uncertainty Economical

Types of Reinsurance Treaties

Quota-share treaty Surplus-share treaty Excess-of-loss treaty Reinsurance pool

Quota-share treaty

Under quota-share treaty, the ceding insurer and reinsurer agree to share premiums and losses based on some proportion.

Surplus-share treaty
Under a surplus-share treaty, the reinsurer agrees to accept insurance in excess of the ceding insurers retention limit, up to some maximum amount. The retention limit is referred to as a line and is stated as a dollar amount.

Excess-of-loss treaty
It is designed largely for catastrophic protection. Losses in excess of the retention limit are paid by the reinsurer up to some maximum limit.

The excess-of-loss treaty written to cover

A single exposure A single occurrence Excess losses when the primary insurers cumulative losses exceed a certain amount during some stated time period, such as a year.

Reinsurance pool

A reinsurance pool is an organization of insurers that underwrites insurance on a joint basis.

Reinsurance pool have been formed because a single insurer alone may not have the financial capacity to write large amounts of insurance, but the insurers as a group can combine their financial resources to obtain the necessary capacity.

Catastrophe Bonds
Cat Bond Instrument developed in capital market to help insurers pay for catastrophe losses. These bonds are rated below investment grade and pay relatively high yields.

Life insurance investments

Life insurance contracts are long term in nature, and the liabilities of life insurers extend over long periods of time. The primary investment objective is safety of principal. Life insurance premium also are an important source of capital funds of the economy.

Property and Liability Insurance Investments

Most assets are invested in securities that can be quickly sold to pay claims if a major catastrophe occursprimarily stocks and bonds. It is short term