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The premium size of each exchange should be kept to a level that removes the possibility of excessive or
unbalanced involvement in any one area. Liabilities accepted on inwards reinsurance business should
not be greater than those usually written on a direct basis.
The time spent in monitoring the trading results of the exchanged treaties and in negotiating mutually
acceptable terms adds to a ceding company’s administration costs, yet the careful use of reciprocity can
help it in managing the outflow and inflow of premium income and profitability.
Example 6.10
Insurer Y places a first surplus treaty for the reinsurance of its commercial and industrial property account. For
strategic business reasons it wishes to keep this treaty in place. The treaty has relatively light natural perils
exposures so Y might seek to match the outflow of premiums and profit by making a reciprocal exchange of similar
business with insurer Z in another territory.

Reinforce
Before continuing, are you aware of the main goals of reciprocity.

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Chapter Reference copy for CII Face to Face Training