What is traditional reinsurance?

A traditional reinsurance firm is one backed by equity capital, with shareholders and a traditional capital model. These reinsurers are often the established players many of which have been involved in the reinsurance market for years.

What are the alternatives to traditional reinsurance?

Another alternative to traditional reinsurance that has gained significant momentum in recent years is the use of alternative risk transfer via the capital markets. Primary insurers are increasingly exploring the use of investment vehicles such as catastrophe bonds (also known as cat bonds) as a way to offset risk.

What is reinsurance and how does it work?

Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit their own total loss in case of disaster. By spreading risk, an insurance company takes on clients whose coverage would be too great of a burden for the single insurance company to handle alone.

What is collateralized reinsurance?

Collateralized reinsurance refers to a reinsurance contract or program which is fully-collateralized, typically and in the cases we are most interested in on Artemis, by investors or third-party capital.

What is the use of reinsurance?

Reinsurance, or insurance for insurers, transfers risk to another company to reduce the likelihood of large payouts for a claim. Reinsurance allows insurers to remain solvent by recovering all or part of a payout. Companies that seek reinsurance are called ceding companies.

What is treaty and facultative reinsurance?

Facultative reinsurance is designed to cover single risks or defined packages of risks, whereas treaty reinsurance covers a ceding company’s entire book of business, for example a primary insurer’s homeowners’ insurance book.

What are the two 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 reinsurance example?

For example, an insurance company might insure commercial property risks with policy limits up to $10 million, and then buy per risk reinsurance of $5 million in excess of $5 million. In this case a loss of $6 million on that policy will result in the recovery of $1 million from the reinsurer.