Page 278 - Ebook health insurance IC27

The Insurance Times

Treaties: treaty reinsurance is a method of reinsurance requiring the insurer and the
reinsurer to formulate and execute a reinsurance contract. The reinsurer then covers all
the insurance policies coming within the scope of that contract. There are two basic
methods of treaty reinsurance:
 Quota share treaty reinsurance, and
 Excess of loss treaty reinsurance.

Facultative reinsurance : in facultative reinsurance, the ceding company cedes and
the reinsurer assumes all or part of the risk assumed by a particular specified insurance
policy. Facultative reinsurance is negotiated separately for each insurance contract that
is reinsured.

Facultative reinsurance normally is purchased by ceding companies for individual risks
not covered by their reinsurance treaties, for amounts in excess of the monetary limits of
their reinsurance treaties and for unusual risks.

Underwriting expenses and, in particular, personnel costs, is higher relative to premiums
written on facultative business because each risk is individually underwritten and
administered. The ability to separately evaluate each risk reinsured, however, increases
the probability that the underwriter can price the contract to more accurately reflect the
risks involved.

Surplus/quota share reinsurance: in this class of reinsurance the reinsurer covers the
risk beyond the retention limit of the primary insurer. It involves one or more reinsurers
taking a stated percent share of each policy that an insurer produces ("writes"). In
addition, the reinsurer will allow a "ceding commission" to the insurer to cover the initial
costs incurred by the insured (marketing, underwriting, claims etc.).

282 Guide for Health Insurance