The reinsurance market is facing a unique combination of market uncertainties. With a majority of reinsurance programs renewing on January 1, SIB explores the challenges as some reinsurers reduce their appetite for catastrophe risk and reveal how to achieve portfolio differentiation in an evolving market.
The reinsurance industry has absorbed volatility and proved resilient to many historical shocks and challenges. Reinsurance remains a highly accretive source of capital for the insurance industry and one that is rightfully in high demand.
Macroeconomic volatility – with inflation being number one topic – has coincided with an increased frequency of extreme weather events, causing reinsurers to reassess their appetite and creating a mismatch in supply and demand.
SIB is the largest treaty broker in Pakistan and best placed to bring you the capital expertise in reinsurance, necessary to keep you better informed and better advised, and that will help you shape better decisions for your company at renewal times.
Our expertise and insight help insurers navigate uncharted territories and create more relevant solutions.
Please find briefly described below the different types of reinsurances:
A reinsurance agreement between an insurance company and reinsurer whereby the reinsured automatically cedes and the reinsurer automatically accepts a certain liability for all risks falling within the scope of the agreement. As treaty reinsurance provides automatic cover, the insurer is guaranteed a definite amount of reinsurance protection on every risk which it accepts, provided the risk falls within the agreed parameters of the treaty. A treaty is therefore an obligatory contract. A most important feature of treaty reinsurance is that it provides automatic cover. The Insurer is guaranteed a definite amount of reinsurance protection on every risk which it accepts.
Facultative reinsurance is usually the simplest way for an insurer to obtain reinsurance protection due to the individual offer and acceptance of risks. The insurance company can either offer an individual risk or a defined package of risks to a reinsurer. The reinsurer retains the right to accept or reject the risk, just like the primary insurer has the right to decide whether to insure a policyholder, as the reinsurer will perform its own underwriting for the policies to be reinsured.
Facultative reinsurance is normally purchased by insurance companies for individual risks not covered, or insufficiently covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and also for high hazard or “unusual” risks which could upset the profile of the portfolio covered by a treaty.
Both facultative and treaty reinsurance arrangements can be written on either a pro rata or an excess of loss basis.
A pro rata arrangement, also known as ‘proportional reinsurance’, can take the form of a quota share or surplus reinsurance in which the reinsurer shares the same proportion of the premium and losses of the insurance company for which the reinsurer will pay a percentage commission to the insurance company.
In an excess of loss agreement, also known as ‘non-proportional reinsurance,’ the insurance company will retain a certain amount of liability for losses. It will pay a premium to the reinsurance company for coverage above that retention, and that coverage is usually subject to a fixed upper limit.