Page 62 - Life Insurance underwriting Ebook IC 22

Under the facultative type of reinsurance the case may be sent to
more than one reinsurer and the reinsurer who gives the most

competitive offer is chosen by company.

2.2. Reinsurance on treaty basis

In treaty reinsurance, the reinsurance has to accept the risk of the
direct insurance company and has no option to decline the risk, as in

the facultative arrangement of reinsurance.

Automatic reinsurance arrangements permit the direct insurance
companies to purchase reinsurance companies to purchase
reinsurance without the time and expense of an underwriting review

by the reinsurer

a) Contractual obligation

This method consist of an agreement between the original insurer
and the reinsurer where by the reinsurer automatically accepts a

certain liability for all risk falling within the scope of agreement.

✓The reinsurer may not decline risk falling within the scope of
the agreements

✓The insurer must allow all risk coming within the scope to be
covered

b) Direct insurer’s contractual obligation with the insured

individuals

It must be remembered that the contract of the policyholder is

with the direct insurer, extra care should therefore be exercised in
choosing the reinsurer.

Sashi Publications Pvt Ltd Call 8443808873/ 8232083010