Reinsurance Operations


Glossary

Bordereau

a list of premiums payable and claims paid or due which is prepared by a coverholder for a managing agent or by a reassured for its reinsurer. Bordereaux are commonly produced on a monthly or quarterly basis. They breakdown block premium payments that are made to underwriters and detail claim payments made on behalf of or due from underwriters..

Cash call

A request for funds made by a managing agent to members of a syndicate..

Cover note

a document that provides initial evidence of the insurance or reinsurance coverage..

Excess of loss reinsurance

a form of reinsurance that, subject to a specified limit, indemnifies the reinsured for that portion of a loss (arising out of a peril covered under one or more original policies) that exceeds the deductible..

Facultative Obligatory Contract

a reinsurance contract with characteristics of both facultative and treaty reinsurance. It allows the reinsured to choose to cede risks, within the defined criteria, that the reinsurer is obliged to accept.

Facultative Reinsurance

the reinsurance of part or all of the insurance covered under a single policy. Each reinsurance is negotiated individually, implying that both the original insurer and the reinsurer have the option of placing/retaining and accepting/rejecting the individual risk. Facultative reinsurance can be conducted either on a pro-rata or non-proportional basis.

Facultative-Obligatory reinsurance

reinsurance when the reinsurer is bound to accept all predefined risks transferred by the primary while the primary insurer is free to choose the risks it wants to share with the reinsurer.

Limit of liability

the maximum amount, which an insurance company agrees to pay in case of loss.

Loss

this term generally refers to some injury, harm, damage or financial deteriment that a person sustains. Losses may be insured or uninsured. Whether a loss is covered by a policy or certificate of insurance depends on the terms of that document and local law.

Non-proportional reinsurance

a type of reinsurance in which the reinsurer does not share similar proportions of the premiums earned and the claims incurred by the reassured plus certain associated expenses. Compare proportional reinsurance. Excess of loss reinsurance is an example of non-proportional reinsurance.

Obligatory-Facultative reinsurance

is reinsurance where the primary insurer is obliged to offer predefined risks written to the reinsurer who in turn is able to either accept or reject them.

Original policy

an insurance policy made between the insurer (the reinsured) and the insured, according to which the Reinsurer shall pay an insurance indemnity to the reinsurer under reinsurance (retrocession).

Profit commission

an additional commission paid by the reinsurer to the cedant based on a predetermined percentage of the profit realized under the contract. Granted as an incentive to the cedant to exercise caution in selection of risks ceded to the treaty.

Pro-rata reinsurance

all forms of reinsurance in which the reinsurer shares a proportional part of the original premiums and losses. Includes Surplus, Quota Share and all other sharing forms of reinsurance in which the reinsurer participates pro rata in all losses and premiums. Also known as Proportional Reinsurance.

Quota reinsurance

share A form of pro-rata reinsurance whereby the reinsurer receives an agreed proportion of all business in a defined category of business. Receives the same proportion of premium and pays the same proportion of claims. The participation in each risk is fixed and certain.

Reinsurance

a contract under which a reinsurer agrees to pay specified types and amounts of underwriting loss incurred by an insurer or another reinsurer in return for a premium. Reinsurance serves to 'lay-off' risk. Reinsurance may be proportional or non-proportional and may take the form of a cover in respect of an individual risk exposure (see facultative risk) or cover in respect of multiple risk exposures (see treaty). Reinsurance accounts for more than half of Lloyd's total business.

Reinsurance commission

percentage of premium paid by the reinsurer to the cedant to compensate part of the expenses on execution and performance of the underlying policy.

Reinsurance Contract

an agreement between a reinsurer and a reinsured for the cession and assumption of certain risks as defined in the contract.

Reinsurance premium

the amount charged by an insurer or reinsurer as the price of granting insurance or reinsurance cover, as stated before or after the subtraction of brokerage and other deductions.

Reinsured

usually used in non-proportional reinsurance, an insurance company that buys reinsurance cover from a reinsurer. In Pro Rata Reinsurance called Cedant.

Reinsurer (cessionary)

the company who assumes all or part of the risk written by an insurance company by way of reinsurance.

Retention

the amount of any loss or combination of losses that would otherwise be payable under an insurance/reinsurance contract which the insured/reassured must bear itself before the insurer or reinsurer becomes liable to make any payment under that contract. Compare deductible and excess. An insured or reassured may be able to insure its retention with another insurer/reinsurer.

Retrocedant

a reinsurer that is reinsured under a retrocession.

Retrocession

a reinsurance of a reinsurer by another reinsurer. It serves to 'lay-off' risk.

Retrocessionaire

the reinsurer under a retrocession.

Stop loss reinsurance

a type of non-proportional reinsurance where the reinsurer reimburses the reinsured for that amount by which the reinsured’s aggregate losses for a specified class of business exceed a pre-determined loss ratio or amount. Used in classes of insurance subject to wide fluctuation in losses from year to year, such as hail insurance. Also known as Aggregate Excess-of-Loss Reinsurance.

Subject matter of reinsurance

the risk the insurer (reinsurer) undertook in its original policy of insurance, co-insurance or reinsurance.

Surplus reinsurance

a type of reinsurance under which bands of cover known as lines are granted above a given retention which is referred to as the cedant’s line. Each line is of equivalent size and the capacity of the treaty is expressed as a multiple of the cedant’s line so that with a retention of £2 million, a three line treaty would provide reinsurance cover of £6 million (£2 million X 3) excess of £2 million. The reinsurer receives an equivalent proportion of the full risk premium. A surplus treaty is a form of proportional reinsurance.

Time excess

is a number of days of interruption which has to be borne by the insured in the event of loss and generally it is 7 days.

Treaty reinsurance

a form of reinsurance in which the ceding company makes an agreement to cede certain classes of business to a reinsurer. The reinsurer, in turn, agrees to accept all business qualifying under the agreement, known as the "treaty." Under a reinsurance treaty, the ceding company is assured that all of its risks falling within the terms of the treaty will be reinsured in accordance with treaty terms.

Unconditional deductible

is a franchise which is deducted from any amount of damages.Under a conditional deductible, the amount of loss within the amount of money comprising the deductible will not be paid. If the amount of loss exceeds the deductible, the payment is made in full.

Underwriting

the process of evaluating a risk for the purpose of issuing insurance coverage on it.

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