Page 13 - M97TB9_2018-19_[low-res]_F2F_Neat2

11

Introduction

The early chapters of this study text provide an overview of the purpose of reinsurance, the parties
involved in the reinsurance transaction and the ways in which reinsurance can be structured to satisfy
the requirements of buyers.
The purpose of reinsurance remains technical, which is to say that it is a mechanism whereby a buyer,
typically an insurer, and otherwise known as a reinsured or cedant, seeks to reduce the financial
consequences of losses resulting from perils it has agreed to insure.
In essence, reinsurance does not limit the insurer’s liability to the entity it has agreed to insure – the
reinsurance contract is legally entirely separate to the insurance contract – but instead limits its
consequences to the insurer by passing it ,in whole or in part, to a reinsurer, via the reinsurance
transaction.
This is done by the insurer entering into an agreement with a reinsurer whereby the reinsurer agrees to
accept a certain fixed share of the insurer’s risk upon the terms set out in the agreement, in return for
payment of a premium at a specified date. The agreement sets out how much, and when, the premium
will be paid by the insurer to the reinsurer.
The decision of the insurer to purchase reinsurance involves consideration of many important issues.
Chapters 1 and 2 look at how the needs of the insurer are identified and met and how reinsurance fits
the insurer’s corporate strategy and other interrelated issues. Of course, these needs have to be kept
under constant review and other actions considered as circumstances change.
Chapters 3, 4 and 5 consider the various types of reinsurance available to the insurer and the strategic
purpose of each along with associated advantages and disadvantages.
Chapter 6 looks at the design, construction, pricing and placement of a programme of reinsurance cover,
leaving you with a detailed understanding of current London market practices. A series of worked Reference copy for CII Face to Face Training
examples demonstrate the different characteristics of combinations of proportional and non-
proportional, facultative and treaty, contracts.
As (re)insurance is a ‘promise to pay’, chapter 7 examines the wording of that promise. After considering
the main features of facultative and treaty wordings, the remainder of the chapter outlines; first, clauses
common to proportional and non-proportional reinsurance contracts and then, separately, clauses which
are specific to those types of reinsurance.

Chapter 8 is concerned with the law applicable to reinsurance contacts and highlights issues that have
arisen in the courts with particular reference to their formation, interpretation, and express and
implied terms.
Chapter 9 is an amalgam of topics, including the nature of the reinsurance market, its cycles and
constituents. There are also sections on captives, financial strength ratings and terrorism.
The remaining three chapters discuss, in turn, the risks inherent in a property, casualty, marine and
aviation account, and underwrite, or reinsure, them.