Reinsurance agreements

There are two kinds of reinsurance agreements, treaties and facultative agreements.

  • Treaty – An agreement between the insurer and the reinsurer to provide coverage for all risks of a certain type.
  • Facultative agreement – An agreement for a specific risk that is negotiated on an individual case basis.

Each of these agreement types can be drawn up as either a proportional or a non-proportional agreement. Proportional and non-proportional agreements share the risk, premium, and payment for loss with the reinsurer in different ways:

  • Proportional reinsurance – Transfers a percentage of the risk to the reinsurer. The reinsurer receives that percentage of the premium and is responsible for that percentage of each loss. Proportional reinsurance is always per risk coverage—it covers one risk.
  • Non-proportional reinsurance – There is no proportional ceding of the risk and no proportional sharing of the premium or the losses. The insurer pays the entire loss up to an agreed amount called the attachment point. The reinsurer pays all or part of the loss that exceeds the attachment point up to a limit previously agreed on by the insurer and reinsurer.

Treaties

A treaty is an agreement between the insurer and the reinsurer that provides reinsurance without the insurer having to submit every risk to the reinsurer. The treaty is a contract, usually arranged on a yearly basis, that covers a class of risks for a monetary range of total insured value. The insurer cedes to the reinsurer a portion of each risk that the treaty covers.

For example, the insurer has a treaty with a reinsurance company. The reinsurance company agrees to pay 40% of property damage claims when the claim amount is between $1 million and $5 million.

See also

Reinsurance coverage groups for treaties

You can group individual coverages into a reinsurance coverage group. Treaties are written to cover losses against a broad category of coverages. For example, a reinsurance group might contain coverages for building, contents, and business interruption. A treaty provides coverage for one or more of these reinsurance coverage groups.

In PolicyCenter, the default configuration contains the following reinsurance coverage groups:

  • Auto Liability
  • Auto PD
  • Liability
  • Property
  • Workers’ Compensation