Page 22 - Reinsurance Management IC85
P. 22
Reinsurance Management
Q. Discuss the general characteristics of
treaties.
Treaties can be either prorata risk sharing (quota share
and surplus) or loss-sharing (excess of loss treaties). A
treaty is an agreement between a ceding company
(reinsured) and one or more reinsurers wherein the ceding
company obligatorily agrees to cede an agreed portion
of risk and the reinsurer agrees to accept the cessions.
The fundamental principle is the obligatory nature of
the contract. The reinsurer cannot directly interfere with
the underwriting and claims practices of the direct
insurer and is bound to accept cessions within the treaty
agreement. A treaty helps a reinsurer with the
advantage of a larger spread and volume and a more
balanced business.
Treaties may have provision for submission of a
bordereaux which contains a list of risks, premium and
claims. When a bordereaux is dispensed with, the treaty
becomes a blind treaty and the emphasis is on the trust
between the direct insurer and reinsurer.
Sashi Publications - www.sashipublications.com 21
ight@ The Insurance Times. 09883398055 / 0988338
