{"id":6167,"date":"2023-02-09T09:07:52","date_gmt":"2023-02-09T14:07:52","guid":{"rendered":"https:\/\/test.axxima.ca\/?p=6082"},"modified":"2023-07-28T14:50:56","modified_gmt":"2023-07-28T19:50:56","slug":"treaty-reinsurance-what-it-is-and-how-it-works","status":"publish","type":"post","link":"https:\/\/www.axxima.ca\/fr\/blog\/treaty-reinsurance-what-it-is-and-how-it-works\/","title":{"rendered":"R\u00e9assurance par trait\u00e9 : Qu\u2019est-ce que c\u2019est et comment cela fonctionne?"},"content":{"rendered":"\t\t
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Ultimate Guide to Treaty Reinsurance<\/h1>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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There may come a time when an insurance company does not have enough working capital to back all the policies they want to underwrite. Or, an insurance company may wish to purchase reinsurance to help minimize their risk on a certain policy or book of business.<\/p>

In these situations, an insurance company could consider purchasing reinsurance. Reinsurance is where an insurance company will transfer portions of their risk portfolios to other parties through some form of agreement.<\/p>

There are different forms of reinsurance available, but one of the most common types is known as treaty reinsurance<\/strong>.<\/p>

This article will outline the nature of treaty reinsurance in detail. We will explain what it is, how it works and outline some considerations for an insurance company looking to purchase it.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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What is Treaty Reinsurance?<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Treaty reinsurance<\/strong> refers to an agreement between an insurance company (the \u201cceding company\u201d<\/strong><\/em>) and a reinsurer <\/em><\/strong>or group of reinsurers (the \u201ccedant<\/em><\/strong>\u201d)<\/em>. Under this agreement, the cedant will accept the risks of a portfolio of policies underwritten by the ceding company. These risks are typically documented in a reinsurance contract, in return for the payment of a premium.<\/p>

Reinsurance effectively transfers a portion of a ceding company\u2019s liabilities to a cedant. As a result, the insurance company can protect itself with assurance that the risks falling within the terms of the treaty agreement will be reinsured by the cedant. So once an insurance company has established a treaty reinsurance agreement with a reinsurer, they can free up capital to allocate elsewhere such as underwriting new policies, or expanding to a new market.<\/p>

Treaty reinsurance is sometimes called obligatory insurance<\/strong> as reinsurers do not underwrite each individual policy themselves, but all risks as defined by the parameters of their contract with the insurance company.<\/p>

Treaty reinsurance contracts are typically long-term relationships. This is because, unlike faculty reinsurance, the reinsurer has agreed to assume the risks for a swathe of policies and not simply a specific risk.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Practical example: Superstorm Sandy, USA<\/strong><\/p>

In 2012, Superstorm Sandy (a post-tropical cyclone) caused a tremendous amount of destruction across more than 20 U.S. states. Tens of thousands of insurance claims were made, with the total amount claimed exceeding US $20 billion.<\/p>

Many insurance companies who met these claims were able to do so because they had reinsurance. Swiss Re, a Zurich-based reinsurance company, reported that Superstorm Sandy would cost them approximately US $900 million. Bermuda-based Arch Capital Group also reported that 60% of its losses from Superstorm Sandy came from its reinsurance operations.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Types of Treaty Reinsurance<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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There are two types of treaty reinsurance contracts that are normally available. These are proportional<\/strong> and non-proportional contracts<\/strong>.<\/p>