Reinsurance in effect is a form of capital purchased on an annual basis. It enables a buyer to reduce volatility of catastrophe losses or frequency of attritional losses, such as a major wind or weather related events. Reinsurance protects your capital or surplus.

Reinsurance enables the Insurance company the ability to trade by covering these unexpected events or series of events.    

If the reinsurance is structured correctly, this capacity allows the company  the ability to grow their surplus by being able to offer policies to their agents and insureds and reducing volatility.  

There are different levels of coverage such as Risk Excess, CAT (Catastrophic) cover, Casualty, and Aggregate. Structured specifically for each company, these types of coverages allow the company to have confidence they are prepared and covered for any unforeseen event they may occur.   

• The Broker solely works on behalf of you the client. 
• The Broker is in the Reinsurance market every day of the year not once a year on renewal.
• The Broker knowing market conditions can advise their client accordingly.
• When dealing on a direct basis, is your Reinsurance provider is looking after their interests or your interest?   
• Brokers should introduce competition, and competition never increases prices.
• Somerset Reinsurance Brokers will discuss the modelled data with you and offer options.
• These options may include retaining more to reduce Reinsurance Cost, Retaining some parts of your account which have performed well but your current Reinsurance provider wants you to cede this business to them.

Both may provide support but the are key items for consideration. First, it is essential the Reinsurance works for the Mutual's best interest on every aspect.  

Your direct reinsurance provider may not offer additional coverages or restrict your ability to retain profitable classes.

Brokers should support a relationship between the Reinsurers and the Mutuals, and bring new coverages to offer your agents. 

A broker's responsibility is to work on behalf of you the client to minimize the Mutual's largest expense, maximize the premium they may keep, educate you the client on the advantages of a correct Reinsurance plan, and be the catalyst for long-term success for the Mutuals.   

It is recommended the Mutual review their program from top to bottom every 3-5 years to ensure their plan works best for their future vision. The Mutual's Reinsurance partner should provide feedback, be open with the analysis and support the Mutual with industry knowledge benefiting their decisions.  ​

Reinsurance enables the Mutual the capacity to trade by covering the exposure of risk. If there is catastrophic event, it is imperative a Mutual have a program that ensures it protects their policyholders and avoids looking to ​policyholders for support of losses.

An Insurance Company can raise more capital by either going issuing more share or a third party investing into the company.

This capacity allows the Mutual the ability to grow and add to their surplus by being able to offer policies to their agents and insureds. Each Mutual should tailor make their program to best suite their portfolio and exposure. They should take advantage of multiple levels of coverage, inception points, time sensitive modelling, and endorsements to support this annual process. It is essential their Reinsurer/Broker is an educated resource willing to answer questions and provide the desired product and options for cover requested.

There are different levels of coverage such as Risk Excess, CAT (Catastrophic) cover, Casualty, and Aggregate.  Structured specifically for each Mutual, these types of coverage allow the Mutual to have confidence they are prepared and covered for any loss they occur.  

Their Reinsurance cover should provide the Mutual a sense of comfort for unpredictable risk and this platform should enable the Mutual to increases surplus through their hard-earned premium. Reinsurance should also create an environment supporting the Mutual's goals and vision moving forward.

A provision in excess of loss reinsurance contracts stipulating that the ceding company will retain, in addition to its retention per risk or per occurrence, an annual aggregate amount of loss that would otherwise be recoverable from the reinsurer; expressed as a dollar amount or a percentage of the ceding company’s subject premium for the annual period; caps the amount of loss the insured may be required to pay before the insurance responds.

A term used to describe the recalculation of prior years of loss experience to demonstrate what the underwriting results of a particular program would have been as if the proposed program had been inforce during that period.

The loss level specified in the terms of the reinsurance contract between the primary insurer and reinsurer; the amount at which excess reinsurance protection comes into effect; the retention under an excess reinsurance

contract.

A reinsurance contract under which the reinsurer allows itself to be bound, within a specified grace period, on any risk that meets the criteria outlined

in the contract.

A report or list, furnished to the reinsurer by the ceding company, detailing the reinsurance premiums and/or reinsurance losses with respect to specific risks ceded in agreement.

A term most frequently used in spread loss property reinsurance to express pure loss cost or the ratio of incurred losses within a specified amount in excess of the ceding company’s retention to its gross premiums over a

stipulated number of years.

The largest amount of insurance or reinsurance available from a company on a given risk; the maximum volume of business a company is prepared to accept; a measure of an insurer’s or reinsurer’s financial strength to issue contracts of insurance or reinsurance; may be imposed by law or regulatory authority.

A catastrophe bond (CAT) is a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster. 

A form of excess of loss reinsurance, subject to a specific limit, which indemnifies the ceding company in excess of a specified retention for

accumulation of losses from catastrophic occurrence.

The act of an insurance company or reinsurance company reinsuring with another reinsurance company.

An amount allowed by reinsurer for part or all of ceding company’s acquisition costs, overhead costs and taxes; usually a percentage of the

reinsurance premium; ceding commission may also include a profit factor for the reinsured.

A document used by a vendor to inform the buyer of current debt obligations, or a document created by a buyer when returning goods received on credit.

An amendment or addition to an existing insurance contract which changes the terms or scope of the original policy

A form of excess of loss reinsurance which, subject to a specified limit, indemnifies the ceding company against the amount of loss in excess of a specified retention with respect to each risk involved in each occurrence.

Those risks, perils, classes of insurance or other insurance company liabilities on which the reinsurer will not pay losses or provide reinsurance, notwithstanding the other terms and condition of reinsurance.

Reinsurance of individual risks by offer and acceptance for each cession; both ceding company and reinsurer have the faculty, or option, to engage in negotiations over individual submissions. 

A contract formalizing a reinsurance cession on a specific risk; contains a declarations page, reinsurance terms and conditions and, except to the extent to which it is non-concurrent, incorporates by reference the terms and conditions of the ceding company’s policy form.

Reinsurance of individual risks by offer and acceptance for each cession; both ceding company and reinsurer have the faculty, or option, to engage

in negotiations over individual submissions.

A reinsurance contract with characteristics of both facultative and treaty reinsurance; a treaty under which the ceding company may cede risks of a defined class that the reinsurer must accept.

A reinsurance contract under which the ceding company must cede and the reinsurer must accept exposure or risks of a defined class.

A quota share reinsurance transaction that elicits significant financial benefits over risk transfer benefits through the use of ceding commissions, potential investment income sharing and liability limits.

A ceding company’s total gross premium before the deduction of any commissions or costs, but after the deduction of reinsurance costs.

The clause in a reinsurance contract that states that the reinsurer is bound to share the same “fortune” as experienced by the ceding company in the event of a widespread catastrophe or other issue.

Inception date is the date on which the fund or policy is launched.

The ratio of losses incurred to premiums earned

An amount representing the losses paid plus the change in outstanding loss reserves within a given period of time; losses which have happened and which will result in a claim under the terms of an insurance policy or a reinsurance agreement.

The Lead Reinsurer sets the terms and conditions of an insurance contract when two or more reinsurers participate; often also has the largest share, but not always; Following Reinsurers generally agree to be bound by the terms set by the Lead.

An insurance marketplace headquartered in London, England where risks are shared among individuals and corporations (Names) that are members of underwriting syndicates, and who provide the financial backing to the business; Lloyd’s can act as either a primary insurer or reinsurer; Syndicate Underwriting Managers conduct the actual risk underwriting; Lloyd’s

Corporation provides service facilities for the underwriters.

A term used to describe certain types of third-party liability exposures where the incidence of loss and the determination of damages are frequently subject to delays which extend beyond the term the insurance or reinsurance was inforce; malpractice, products liability, errors and omissions.

 (LAE, Allocated Loss Adjustment Expense, ALAE, Unallocated Loss Adjustment Expense, ULAE)

Allocated - expenses incurred by the ceding company to investigate, defend and settle claims under its policies and which it specifically allocates to claim; directly identifiable expenses distinct to a particular claim; Unallocated - includes the insurer’s overhead expenses and other costs of doing business such as payments to salaried employees; cannot be specifically designated to a particular claim.

(Occurrence) The total losses to the ceding company or the reinsurer, resulting from a single cause

A loss sustained by a primary carrier that is greater than the policy limits issued by it, due to negligence or bad faith failure to settle the claim within the policy limits when it had the opportunity to do so; reinsurance treaties

so; reinsurance treaties

Used in retrospective reinsurance rating plans to convert losses to premium and provide for reinsurer’s loss adjustment expense, overhead and profit margin, subject to established maximums and minimums.

Cession of a contractually-defined set of outstanding liabilities assumed by the reinsurer for a consideration; liabilities are retroactive.

Proportionate relationship of incurred losses to earned premiums expressed as a percentage.

An estimate of the amount of outstanding loss remaining to be paid for the reported claim; estimated expected payments for reported and unreported claims.

A type of reinsurance treaty covering only those losses which are sustained during the term of the treaty.

Project known or developed ultimate losses to future cost levels for a future coverage period; primarily applied in lines of business that are adversely affected by inflation, e.g. Automobile and General Liability.

(NAIC)

The chief insurance regulatory officials of the 50 states.

The amount of loss sustained by a ceding company after deducting all recoveries, salvage, and reinsurance; may not include allocated loss adjustment expenses

Applies to those hazard or risks of loss or damage that are specifically described in the reinsurance contract.

Reinsurance under which the reinsurer’s participation in a loss depends on the size of the loss; claim payments are made to the ceding company when the ceding company’s claims exceed a predetermined loss limit.

(Automatic Treaty, Obligatory Contract,

Binding Agreement, Facultative Automatic)

A reinsurance contract under which the subject business must be ceded by the ceding company in accordance with contract terms and must be

accepted by the reinsurer.

An incident, event or happening; in reinsurance, per-occurrence coverage permits all losses arising out of one event to be aggregated, rather than handled on a policy-by-policy or risk-by-risk basis; in casualty insurance and reinsurance, this term may be defined as continual, gradual or repeated exposure to an adverse condition that is neither intended

nor expected to result in injury or damage, as contrasted with an accident expected to result in injury or damage, as contrasted with an accident or sudden happening; in property catastrophe reinsurance contracts,

occurrence is usually defined as all losses within a specified period occurrence is usually defined as all losses within a specified period

of time involving a particular peril.

Traditional method of coverage whereby coverage is provided for losses from claims which occurred during the policy period, regardless of when from claims which occurred during the policy period, regardless of when

the claims are reported.

A provision in most per risk reinsurance contracts that limits the reinsurer’s liability for all first involved in one occurrence.

A facility under which risks of a specified category may be declared and insured; infrequently used in reinsurance.

Refers to the possible causes of loss in property insurance.

A reinsurance contract provision that aggregates all losses arising out of a single occurrence, subject to the ceding company’s retention prior to reinsurance recovery.

A limit on the amount the reinsurer will pay as the result of a single event or occurrence.

A form of property excess of loss reinsurance were the ceding company’s retention and amount of reinsurance apply per risk rather than on a per

accident, event or aggregate basis.

A study which segregates an insurer’s policies into various groupings, e.g., by policy limit or policy premium.

Refers to all claims and premiums that stem from a set of insurance policies issued over a 12 month period.

Liability of insurer for unexported portion of inforce policies, outstanding losses, or both for described segment of insurer’s business.

A 100% by transfer assumption of portfolio of a defined block of business by acceptance of a block of policies inforce, a block of outstanding losses or by acceptance of a block of policies inforce, a block of outstanding losses or a combination of both; may refer to treaty or automatic reinsurance programs, as distinguished from facultative reinsurance.

The return of unearned reinsurance premium and loss reserves on inforce business to the ceding company upon termination of a reinsurance contract.

Refers to the aggregate premium volume an insurer or reinsurer insurer can write.

(Quota Share, Proportional, Participating, First

Surplus, Second Surplus, Surplus Surplus, Surp

lus Share)

Generic term describing all forms of quota share and surplus reinsurance; reinsurer shares a pro rata portion of losses and premiums with ceding forms of treaty reinsurance and the most common in property reinsurance

The basic form of pro rata reinsurance whereby the reinsurer accepts a stated percentage of each and every risk within a defined category of

business; participation in each risk is fixed and certain; the primary insurer and the reinsurer agree in advance to a percentage for sharing policy limits, premiums and losses.

When the amount of reinsurance coverage provided under a contract is reduced by the payment of loss as the result of one occurrence, the reinsurance cover is automatically reinstated, sometimes subject to the payment of a specified reinstatement premium; reinsurance contracts may provide for an unlimited number of reinstatement or for a specific number.

A pro rata reinsurance premium that may be charged for reinstating the amount of reinsurance coverage reduced as the result of a reinsurance loss payment under a catastrophe cover; property catastrophe covers almost always call for reinstatement premium(s) when coverage is reinstated.

When a reinsurance company obtains reinsurance. A reinsurance transaction whereby a reinsurer (the retrocedent) cedes all or part of reinsurance risk to another reinsurer (retrocessionaire). 

A transaction whereby the one party, the reinsurer, in consideration of premium paid, agrees to indemnify another party, the ceding company, for part of all of the liability assumed by the ceding company under a policy (or

policies) of insurance; reinsurer (assuming insurer) agrees to indemnify the ceding company against all or part of loss which latter may sustain under policies issued; one of the prime functions of reinsurance is to provide capacity.

That portion of the risk the reinsurer accepts from the ceding company.

That portion of the risk that the ceding company transfers to the reinsurer.

(Pool, Association,

Syndicate)

An organization of insurers or reinsurers through which members underwrite particular types of risks with premiums, losses and expenses shared in agreed amounts or ratios; may be formed to share in a specialty

insurance line that require special expertise or to address market catastrophe exposure; formed to spread reinsurance risks.

Consideration paid by the ceding company to the reinsurer for the liability assumed by the reinsurer.

Combination of reinsurance contracts entered into by a ceding company.

The insurer which assumes all or part of insurance or reinsurance risk written by another insurer.

The amount of risk the ceding company keeps for its own account or account of others.

A reinsurance transaction whereby a reinsurer (the retrocedent) cedes all or part of reinsurance risk to another reinsurer (retrocessionaire).

The reinsurer of reinsurance companies.

The uncertainty of loss; the tangible or intangible things, persons, entities, items, subject to a potential loss.

A form of per risk excess agreement under which the indemnity is not a fixed dollar limit but a multiple of the primary company’s net retention. 

The extent to which insurance risk is shifted from the cedent to the reinsurer.

A group of two or more organizations authorized by the federal Risk Retention Act to pool and retain some or all of their exposures, there by gaining favorable income tax treatment of their contributions to related gaining favorable income tax treatment of their contributions to related loss reserves.

The theoretical amount of capital that is needed to absorb the risks of operating a business with financial obligations to customers; the amount necessary to ensure that the business has an acceptably low expectation necessary to ensure that the business has an acceptably low expectation of becoming financially insolvent.

(Run-Off Cancellation,Cut-Off Cancellation)

A termination provision of a reinsurance contract stipulating that the reinsurer shall remain liable for loss under reinsured policies inforce at the date of termination, as a result of occurrences taking place after the date of

termination.

The schedule on a company’s Annual Statement that summarizes reinsurance transactions.

The setting aside of funds by an individual or organization to pay losses and to absorb fluctuations in the amount of loss; losses are charged against the accumulated funds.

An individual, partnership or corporation who retains all or part of the risk for its own account.

A specific type of reinsurance in which the reinsurance company pays the ceding company aggregate retained losses, subject to the policy limit, in excess of a certain amount or percentage.

An individual, partnership or corporation who retains all or part of the risk for its own account.

Creation of a fund by an insurer to absorb losses beyond the insurer’s by an insurer to absorb losses beyond the insurer’s

The facultative extension of a reinsurance treaty to cover a risk not automatically included within its terms.

A clause that provides coverage for losses reported to the reinsurer during the term of the current reinsurance contract, but resulting from

occurrences that took place during a prior period; typically no longer found in reinsurance contracts due to the genesis of the Sunset Clause

.

A clause that stipulates that the reinsurer will not be liable for any loss that is not reported to the reinsurer within a specified period of time after the

expiration of the reinsurance contract.

The portion of the ceding company’s gross amount of insurance on a risk remaining after deducting the retention established by the ceding company

Any risk or part thereof for which there was no available market to the original broker or agent; business, which would otherwise be subject to

regulation as to rate or coverage, placed in non-admitted markets on an unregulated basis in accordance with the Surplus or Excess Line provisions of state insurance laws.

Brokers permitted to do business with non-admitted insurers, but only if admitted insurers have declined to write the risk.

A group of companies or other underwriters who join together to insure certain risks which may be of such value or hazard, or so expensive to underwriter that it can be done on a cooperative basis more efficiently

Reinsurance where the primary motivation is insurance risk transfer.

A reinsurance contract under which the reinsured company agrees to cede and reinsurer agrees to assume risks of a particular class of business.

A standing agreement, often obligatory and long-term in nature, between a reinsurer and a ceding company that provides for the automatic cession and assumption of the classes of risk specified in the treaty.

The total sum which the ceding company becomes obligated to pay either through adjudication or compromise, for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of the insured loss, excluding only the salaries of the ceding company’s permanent employees.

That portion of the original premium that applies to the unexpired portion back the unearned part of the original premium.