RE•IN•SUR•ANCE: A Basic Guide to Facultative and Treaty Reinsurance II MUNICH R

RE•IN•SUR•ANCE: A Basic Guide to Facultative and Treaty Reinsurance II MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance Introduction 1 What Is Reinsurance? 2 Functions of Reinsurance 3 Providers of Reinsurance 3 Regulation 4 Reinsurance Concepts 5 Facultative and Treaty 5 Pro Rata and Excess of Loss 6 Applying the Basics: Facultative Reinsurance 8 Pro Rata 8 Excess of Loss 10 Facultative Casualty Reinsurance 12 Facultative Property Reinsurance 13 Facultative Programs: Casualty and Property 14 Applying the Basics: Treaty Reinsurance 15 Pro Rata 15 Quota Share 16 Surplus Share 20 Excess of Loss 22 Variations 25 Glossary 26 This publication is intended only as a reference tool for the insurance and reinsurance industry. While the publication is designed to provide general information with regard to the subject matter covered, it does not address all of the technical aspects of a defined term or topic and does not constitute a legal consultation or legal opinion. No decision should be made on the basis of the definitions or the overview provided herein. Instead, readers should consult with legal counsel. The definitions or the overview contained herein are intended to apply only to property and casualty reinsurance. MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance 1 INTRODUCTION Munich Re stands for solution-based expertise, consistent risk management, financial stability and client proximity. Our clients trust us to develop solutions for the whole spectrum of reinsurance – from traditional reinsurance agreements to the management of complex specialty reinsurance risks. Our U.S. operations is, on a standalone basis, one of the largest property- casualty reinsurance companies in the United States. Together with our affiliates, American Modern Insurance Group and Hartford Steam Boiler Group, we deal with the issues that affect society and work to devise cutting- edge solutions that render tomorrow’s world insurable. Our recipe for success: we anticipate risks early on and deliver solutions tailored to clients’ needs, creating opportunities to achieve sustained profitable growth. This book is intended to be a brief and basic introduction to reinsurance concepts. The numerical examples given are merely to illustrate the concepts discussed, and are not intended to suggest any particular price or condition for any of the reinsurance described. We have also included a comprehensive glossary of terms used to understand these concepts. For additional information, however, the reader should consult more comprehensive reinsurance publications. Keep in mind that developing a financially sound reinsurance program must take into account the unique risks that an insurer faces. Our professional specialists combine their expertise in applying the fundamental concepts found in this brochure with their extensive experience in designing reinsurance programs to address the unique needs of each client. Please visit our website www.munichreamerica.com if you would like additional information about Munich Re. 2 MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance WHAT IS REINSURANCE? Reinsurance is a transaction whereby one insurance company (the “reinsurer”) agrees to indemnify another insurance company (the “reinsured, “cedent” or “primary” company) against all or part of the loss that the latter sustains under a policy or policies that it has issued. For this service, the ceding company pays the reinsurer a premium. The purpose of reinsurance is the same as that of insurance: to spread risk. Reinsurance helps protect insurers against unforeseen or extraordinary losses by allowing them to spread their risks. For example, a catastrophic fire at an industrial enterprise could financially devastate its insurer. With reinsurance, no single insurer finds itself saddled with a financial burden beyond its ability to pay. MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance 3 Functions of Reinsurance The most common reasons for purchasing reinsurance include: Capacity Relief Allows the reinsured to write larger amounts of insurance. Catastrophe Protection Protects the reinsured against a large single, catastrophic loss or multiple large losses. Stabilization Helps smooth the reinsured’s overall operating results from year to year. Surplus Relief Eases the strain on the reinsured’s surplus during rapid premium growth. Market Withdrawal Provides a means for the reinsured to withdraw from a line of business or geographic area or production source. Market Entrance Helps the reinsured spread the risk on new lines of business until premium volume reaches a certain point of maturity; can add confidence when in unfamiliar coverage areas. Expertise/Experience Provides the reinsured with a source of underwriting information when developing a new product and/or entering a new line of insurance or a new market. Providers of Reinsurance Direct Writers Reinsurers enter into reinsurance relationships directly with the ceding company. The collection of premiums and payment of claims are handled directly by the reinsurer. Broker-Market Reinsurers Assume business through reinsurance intermediaries (i.e. brokers) who typically negotiates reinsurance contracts between the ceding company and the reinsurer(s), and provide the production or sales support. 4 MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance Brokers generally represent the ceding company and receive compensation in the form of commission, and/or other fees, for placing the business and performing other necessary services. The brokerage commission is almost always paid by the reinsurer. Typically, the broker will collect premiums and handle disbursements of claims payments. Reinsurance Departments of Insurers A primary insurance company’s reinsurance department assumes reinsurance business. Pools or Associations Pools or associations consist of individual primary insurers that have banded together to increase their underwriting or large line capacity, premium capacity or to provide coverage for risks which are uninsurable by conventional means. Pools can be organized to provide insurance or reinsurance. Pools or associations are typically managed by a separate company which provides underwriting and loss handling experience and administration. Regulation Reinsurers are generally subject to many of the same regulations as primary insurers. Both insurers and reinsurers are mostly regulated at the state level, where state insurance departments create and enforce state regulations. Regulation of both insurance and reinsurance aims at ensuring the solvency of the insurer/reinsurer to pay claims on the contracts that it issues. State insurance departments also license insurers/reinsurers to do business in their state. Admitted Company (Authorized Company) An insurer or reinsurer licensed to conduct business in a given state. Non-Admitted Company (Un-authorized Company) An insurer or reinsurer not licensed in a given state. The National Association of Insurance Commissioners is an organization of the chief insurance regulatory officials of the 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico and the Virgin Islands. Its purpose is to coordinate regulatory activities among these states and territories and provide a forum to discuss insurance issues MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance 5 REINSURANCE CONCEPTS Facultative and Treaty There are essentially two types of reinsurance arrangements: Facultative Reinsurance Reinsurance transacted on an individual risk basis. The ceding company has the option to offer an individual risk to the reinsurer and the reinsurer retains the right to accept or reject the risk. Treaty Reinsurance A transaction encompassing a block of the ceding company’s book of business. The reinsurer must accept all business included within the terms of the reinsurance contract. Characteristics Facultative (Individual Risk) Treaty (Book of Business) – Individual risk review – Right to accept or reject each risk on its own merit – A profit is expected by the reinsurer in the short and long term, and depends primarily on the reinsurer’s risk selection process – Adapts to short-term ceding philosophy of the insurer – A facultative certificate is written to confirm each transaction – Can reinsure a risk that is otherwise excluded from a treaty – Can protect a treaty from adverse underwriting results – No individual risk acceptance by the reinsurer – Obligatory acceptance by the reinsurer of covered business – A long-term relationship in which the reinsurer’s profitability is expected, but measured and adjusted over an extended period of time – Less costly than “per risk” reinsurance – One treaty contract encompasses all subject risks 6 MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance Pro Rata and Excess of Loss Facultative and treaty reinsurance can be written on either a pro rata or excess of loss basis. Pro Rata A term describing all forms of quota share and surplus share reinsurance in which the reinsurer shares the same proportion of the premium and losses of the ceding company. Pro rata reinsurance is also known as “proportional reinsurance”. Along with sharing proportionally in premium and losses, the reinsurer typically pays a ceding commission to the ceding company to reimburse for expenses associated with issuing the underlying policy. Advantages – Easy to administer. – Good protection against frequency/severity potential. – Protection of net retention on first-dollar basis. – Permits recovery on smaller losses. = Premium O 40% Ceding Company $ O 60% Reinsurance $ Losses O 40% Ceding Company $ O 60% Reinsurance $ MUNICH RE Re•in•sur•ance: A Basic Guide To Facultative And Treaty Reinsurance 7 Excess of Loss A term describing a reinsurance transaction that, subject to a specified limit, indemnifies a ceding company against the amount of loss uploads/Geographie/ reinsurance-basic-guide.pdf

Tags
Administrationreinsurance premium reinsurer ceding insurance
Documents similaires
  • 16
  • 0
  • 0
Afficher les détails des licences
Licence et utilisation
Gratuit pour un usage personnel Attribution requise
Partager