Types of reinsurance
What are the two types of reinsurance?
Types of Reinsurance
Reinsurance can be divided into two basic categories: treaty and facultative. Treaties are agreements that cover broad groups of policies such as all of a primary insurer’s auto business.
What is facultative and treaty reinsurance?
Facultative reinsurance and reinsurance treaties are two types of reinsurance contracts. When it comes to facultative reinsurance, the main insurer covers one risk or a series of risks held in its own books. Treaty reinsurance, on the other hand, is insurance purchased by an insurer from another company.
What reinsurance means?
Issue: Reinsurance, often referred to as “insurance for insurance companies,” is a contract between a reinsurer and an insurer. In this contract, the insurance company—the cedent—transfers risk to the reinsurance company, and the latter assumes all or part of one or more insurance policies issued by the cedent.
How many reinsurance contracts are there?
There are two basic types of reinsurance arrangements: facultative reinsurance and treaty reinsurance.
What is stop loss reinsurance?
Stop-Loss Reinsurance (SLR) — an agreement whereby a reinsurer assumes on a per-loss basis all loss amounts of the reinsured, subject to the policy limit, in excess of a stated amount. Not to be confused with aggregate stop-loss reinsurance. See also Excess of Loss Reinsurance, which SLR resembles.
What is passive reinsurance?
In the case of an active reinsurance business the reinsurer takes the risks of the reinsurance policy holder, in the case of a passive reinsurance business the reinsurance policy holder transfers (cedes) his risk to the reinsurer in the business accounting sense.
What are the 4 most important reasons for reinsurance?
Insurers purchase reinsurance for four reasons: To limit liability on a specific risk, to stabilize loss experience, to protect themselves and the insured against catastrophes, and to increase their capacity.
What are the functions of reinsurance?
The function of reinsurance is to absorb the risks of the direct insurance industry. This has two main purposes: (i) reinsurance capital allows direct insurers to write more business, and (ii) it protects them against balance sheet fluctuations caused by large and unexpected losses.
What is treaty reinsurance in insurance terms?
Treaty reinsurance represents a contract between the ceding insurance company and the reinsurer who agrees to accept the risks of a predetermined class of policies over a period of time. When insurance companies underwrite a new policy, they agree to take on additional risk in exchange for a premium.
What did the reinsurance treaty do?
The treaty provided that each party would remain neutral if the other became involved in a war with a third great power and that this would not apply if Germany attacked France or if Russia attacked Austria.
What is the difference between ceded and assumed reinsurance?
Reinsurance ceded is the action taken by an insurer to pass off a portion of its obligation for coverage to another insurance company. Reinsurance assumed is the acceptance of that obligation by another insurance company.
Why did the reinsurance treaty end?
After Bismarck lost power in 1890, his enemies in the Foreign Ministry convinced the Kaiser that the treaty was too much in Russia’s favor and should not be renewed. The cancellation like the treaty itself remained a top secret.
What is the oldest form of reinsurance?
Facultative Reinsurance
Facultative Reinsurance
This is the oldest form of reinsurance. Facultative reinsurance is a method of reinsurance where an insurance underwrite offers a risk to one or more reinsurance underwriters on an individual basis.
What are the 8 Central Powers?
Member states
| Population (millions) | ||
|---|---|---|
| Germany (1914) | Total | 77.7 |
| Austria-Hungary (1914) | 50.6 | |
| Ottoman Empire (1914) | 23.0 | |
| Bulgaria (1915) | 4.8 | |