What is the full reinsurance clause?
The full reinsurance clause provides, in one or other form, that the terms of the reinsurance are the same as those in the direct policy and that the reinsurers will follow the settlements of the reinsured.
Reinsurance is a type of insurance that is purchased by insurance companies to reduce risk. Essentially, reinsurance may restrict the cost of damages that the insurer can theoretically experience. In other words, it saves insurance providers from financial distress, thus shielding their clients from undisclosed risks.
An index clause, also referred to as an inflation clause, a stability clause, or an indexation clause, redistributes inflation-related increases in the costs of claims between the ceding insurer and its reinsurer.
Issue: Reinsurance, often referred to as “insurance for insurance companies,” is a contract between a reinsurer and an insurer. In this contract, the insurance company—the cedent—transfers risk to the reinsurance company, and the latter assumes all or part of one or more insurance policies issued by the cedent.
Facultative reinsurance and reinsurance treaties are two types of reinsurance contracts. When it comes to facultative reinsurance, the main insurer covers one risk or a series of risks held in its own books. Treaty reinsurance, on the other hand, is insurance purchased by an insurer from another company.
Reinsurance, or insurance for insurers, transfers risk to another company to reduce the likelihood of large payouts for a claim. Reinsurance allows insurers to remain solvent by recovering all or part of a payout. Companies that seek reinsurance are called ceding companies.
Reinsurance is a way a company lowers its risk or exposure to an untoward event. The idea is that no insurance company has too much exposure to a particular large event/disaster.
The most commonly cited is the "10/10 rule." This rule states that a contract passes the threshold if there is at least a 10 percent probability of sustaining a 10 percent or greater present value loss (expressed as a percentage of the ceded premium for the contract).
sunset clause. A clause in a casualty excess of loss reinsurance cover that provides that the reinsurer will respond only to losses reported before some predetermined future date (sunset). The clause is used to limit the reinsurer's exposure to the "long-tail" of liability exposure, particularly in the U.S.
An offset clause is a provision in reinsurance agreements that permits each party to net amounts due against those payable before making payment.
How do reinsurers make money?
Reinsurers play a major role for insurance companies as they allow the latter to help transfer risk, reduce capital requirements, and lower claimant payouts. Reinsurers generate revenue by identifying and accepting policies that they believe are less risky and reinvesting the insurance premiums they receive.
The 9-month rule, which comes out of Part 23 of SSAP 62, requires that the reinsurance contract be finalized—reduced to written form and signed within 9 months after commencement of the policy period—but allows the contract to incept before the contract is finalized.
Reinsurance recoverables are an insurance company's losses from claims that can be recovered from reinsurance companies. These recoverables may be among some of the largest assets on the original insurance company's balance sheet. Recoverables are generally considered liabilities for reinsurance companies.
For example, if there were a flood of claims due to a recent hurricane, the reinsurer would be responsible for some of the liabilities incurred. This way, the primary insurance company is able to handle more clients who are located in these hurricane-prone areas, since it essentially has the backup to cover claims.
Three reinsurance methods are usual: Treaty Reinsurance, Facultative Reinsurance and a hybrid mode with elements from the Treaty and the Facultative. This is the most common cession method within the reinsurance market.
Definition: Reinsurance risk refers to the inability of the ceding company or the primary insurer to obtain insurance from a reinsurer at the right time and at an appropriate cost. The inability may emanate from a variety of reasons like unfavourable market conditions, etc.
Insurance offers coverage against unforeseen risks to individuals. Reinsurance, on the contrary, offers coverage to the insurance provider against certain losses and risks. Insurance and reinsurance are two important risk management concepts in the world of finances.
From an investment perspective, reinsurance serves primarily as an income-producing asset. Investors pool money in a reinsurance fund that, in turn, provides coverage to back the risk carried by other insurers. Those insurers pay premiums for the coverage, generating an income stream for investors.
Insurance is a legal agreement between an insurer and an insured in which the former guarantees to defend the latter in the event of damage or death. Reinsurance is the insurance a firm purchase to lessen severe losses when it decides not to absorb the entire loss risk and instead shares it with another insurer.
What is the loss limit in reinsurance?
Treaty or facultative reinsurance contracts often specify a limit in losses for which the reinsurer will be responsible. This limit is agreed to in the reinsurance contract; it protects the reinsurance company from dealing with unlimited liability.
In reinsurance, ultimate net loss refers to the unit of loss to which the reinsurance applies, as determined by the reinsurance agreement. In other words, the gross loss less any recoveries from other reinsurance which reduce the loss to the treaty in question.
Ultimate net loss clause - definition in agreement to include all losses for which the ceding company has paid or becomes liable to pay. If the reinsurance agreement contains language providing for reimbursem*nt for "fraud or bad faith", such language is to be deleted.
To protect the insured from any damage that takes a long time to develop, insurance and reinsurance policies may contain a sunrise provision. A sunrise provision protects the insured from any damage that develops slowly over time. Insurance and reinsurance policies may contain a sunrise provision, but not always.
For example, an hourly clause may indicate that only damages sustained within four hours of an earthquake are covered by the reinsurance contract. Typically, the time period is fixed at 72 or 168 hours. More recently, hourly clauses have seen an increase in time periods.
