Following are the important types of Reinsurance
Proportional reinsurance involves one or more reinsurers taking a stated percent share of each policy that an insurer produces. This means that the reinsurer will accept that stated percentage of each of premiums and will pay that percentage of each loss. The insurer may appear for such coverage for many reasons for example, the insurer may not have sufficient capital to carefully keep all of the exposure that it is capable of producing.
There are two types of proportional reinsurance :
Under this type of reinsurance, insurer is responds to the loss suffered by the insurer exceeds a certain amount, it is called as, the retention or priority.
Facultative reinsurance is coverage where the reinsurer evaluates a particular risk on a case-by-case basis. Facultative reinsurance is negotiated separately for each insurance contract that is to be reinsured. The flexibility of facultative reinsurance allows various ceding insurers to reinsure dangerous risks which are not covered by continuing contract, so they can reduce the insurer's responsibility in certain high-risk areas. Facultative reinsurance also allows the prime insurers to get the reinsurer's advice on uncertain risks. This type of reinsurance contract can be in pro-rata form or excess of loss.
Advantages of the Facultative Reinsurance :
Disadvantages of the Facultative Reinsurance :
Treaty reinsurance is a contract between insurers and reinsurers. The ceding company is contractually bound to cede and the reinsurer is bound to assume a particular element or kind of risk insured by the ceding company. Once the negotiations of the contract are over, the reinsurer must automatically allow all business included within the conditions of the reinsurance contract with the ceding company.
Advantages of Treaty Reinsurance :
Disadvantages of Treaty Reinsurance :