Treaty and facultative
A treaty covers a whole class or portfolio of an insurer’s business automatically. Facultative reinsurance is arranged for one individual risk at a time.
ReinsuranceThe insurer’s insurer.
Reinsurance is insurance for insurers: the transfer of part of an insurer’s risk to another company. This page sets out what reinsurance is, the forms it takes, and the institutions that have carried it.
Understanding
What reinsurance is
An insurer that accepts a risk can pass part of it on. The company that takes it, the reinsurer, agrees to bear a share of the losses in return for a share of the premium. The original policyholder rarely sees the arrangement, but it determines how much risk any single insurer can responsibly hold.
Modern reinsurance took its form from catastrophe. The fire that destroyed the Swiss town of Glarus in 1861 showed how far one loss could exceed the capacity of local insurers; Swiss Re was founded two years later, and Munich Re in 1880.
Reinsurance is also a question of regulation. Capital regimes such as Solvency II in the European Union, Solvency UK and their equivalents elsewhere set how much capital an insurer must hold against the risks it keeps, and reinsurance changes what it keeps.
Forms & Structures
The forms and structures of reinsurance
The vocabulary below describes nearly every reinsurance arrangement in the market.
Proportional and non-proportional
In proportional reinsurance the reinsurer shares premium and losses in a fixed ratio. In non-proportional reinsurance, such as excess of loss, it pays only once losses pass an agreed threshold.
Life and annuity reinsurance
The transfer of mortality, longevity or investment risk on life policies and annuities. Long-dated by nature, it ties reinsurance closely to the management of long-term assets.
Sidecars
Separate vehicles through which outside investors take a share of a reinsurer’s risk on a defined book of business, usually for a limited term.
Retrocession
Reinsurance bought by reinsurers. It spreads the largest risks further across the market.
Insurers and asset managers
In recent years, large asset managers have formed alliances with life and annuity insurers and reinsurers, pairing long-term liabilities with long-term assets.
LIBRO does not underwrite, sell, arrange or advise on insurance, and nothing here is an offer, an invitation, a recommendation or advice. This page is general information, written for understanding. Insurance is regulated, and questions of cover belong with a licensed insurer or broker in the relevant jurisdiction.