What is proportional and non proportional reinsurance?
While Proportional reinsurance is based on the sum insured, Non Proportional reinsurance uses the size of the claim to design the cover. The insurance company decides the claim amount it can assume for itself on one single risk or on one event involving many risks: that is the retention.
What is proportional reinsurance?
A proportional reinsurance agreement, also known as “Pro Rata” reinsurance, obligates the reinsurer to share a percentage of the losses. The reinsurer receives a prorated share of the insurer’s premiums. For example, a proportional reinsurance agreement may require a reinsurer to cover 60% of losses.
What is non proportional insurance?
Nonproportional Reinsurance — also known as excess of loss reinsurance. Losses excess of the ceding company’s retention limit are paid by the reinsurer, up to a maximum limit. Reinsurance premium is calculated independently of the premium charged to the insured.
What are the two types of reinsurance?
There are two basic types of reinsurance arrangements: facultative reinsurance and treaty reinsurance.
What is proportional facultative reinsurance?
Facultative reinsurance is coverage purchased by a primary insurer to cover a single risk or a block of risks held in the primary insurer’s book of business.
Is facultative reinsurance proportional or non proportional?
Depending on how the Risks, Premiums and losses are shared between the Cedant and the Reinsurer, Treaty/ Facultative Reinsurance can either be of proportional or non- proportional nature.
What is retrocession in reinsurance?
Retrocession is the reinsuring of a risk by a reinsurer. A retrocession is placed to afford additional capacity to the original reinsurer, or to contain or reduce the original reinsurer’s risk of loss.
What is facultative reinsurance?
Facultative reinsurance is reinsurance purchased by an insurer for a single risk or a defined package of risks. Usually a one-off transaction, it occurs whenever the reinsurance company insists on performing its own underwriting for some or all the policies to be reinsured.
Who is ceding company?
A ceding company is an insurance company that passes a portion or all of the risk associated with an insurance policy to another insurer. Ceding is helpful to insurance companies since the ceding company that passes the risk can hedge against undesired exposure to losses.
What is surplus treaty?
Surplus treaty is a type of proportional or pro rata reinsurance treaty in which the ceding company determines the maximum loss that it can retain for each risk in the portfolio. This amount is defined as “a line”.
What is facultative obligatory reinsurance?
Facultative Obligatory Treaty — the hybrid between the facultative versus treaty approach. It is a treaty under which the primary insurer has the option to cede or not cede individual risks. However, the reinsurer must accept any risks that are ceded.
What is the difference between treaty and facultative?
Treaties are agreements that cover broad groups of policies such as all of a primary insurer’s auto business. Facultative covers specific individual, generally high-value or hazardous risks, such as a hospital, that would not be accepted under a treaty.
What is arbitrage in reinsurance?
Arbitrage. The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than they charge the insured for the underlying risk, whatever the class of insurance.
What is inwards reinsurance?
Definition. Inwards Reinsurance (UK) represent the reinsurance business accepted by an insurer or reinsurer, as opposed to that ceded to another insurer. Also known as: Assumed Reinsurance (US)
What is outward reinsurance?
Definition. The enterprise ceding (giving up) the risks is said to place outward reinsurance. Reinsurance ceded by an insurer or reinsurer, as opposed to inwards reinsurance which is reinsurance accepted. (
What is outward premium?
outward reinsurance premiums means premiums in respect of reinsurance ceded net of overriding commission and profit commission and includes deposit and adjustment premiums; Sample 1. Sample 2.
What is the difference between inward and outward reinsurance?
The enterprise accepting the risk is the reinsurer and is said to accept inward reinsurance. The enterprise ceding the risks is the cedant or ceding company and is said to place outward reinsurance.
What is Cor in insurance?
COR. Combined Operating Ratio – a measure of general insurance underwriting profitability, the COR compares claims, costs and expenses to premiums. If the costs are higher than the premiums (ie the ratio is more than 100%) then the underwriting is unprofitable.
What are attritional losses in insurance?
Attritional losses – losses other than those related to major catastrophes or exposures – are one of the areas that Lloyd’s seeks to improve through its strategic profitability review, whereby syndicates are to review their loss-making lines of business and worst-performing portfolios and aim to improve their …
What does assumed mean in insurance?
Assume — (1) To reinsure all or part of another insurer’s risk. (2) A risk management technique involving the retention of risk (e.g., self-insurance).
How does assumed reinsurance work?
Reinsurance Assumed — that portion of a risk that a reinsurer accepts from an original insurer (also known as a “primary” insurer) in return for a stated premium.
What is the difference between ceded and assumed reinsurance?
Reinsurance is a risk management tool used by insurers to spread risk and manage capital. The insurer transfers some or all of an insurance risk to another insurer. The insurer transferring the risk is called the “ceding insurer”. The insurer accepting the risk is called the “assuming insurer” or “reinsurer”.