Treaty Reinsurance

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Treaty Is a reinsurance agreement under which the reinsurer accepts part liability on all risks as specified on the agreement. The issuing company is called the cedent, while the reinsurer is the purchasing company, which assumes the risks specified in the contract for a premium. Treaty usually represents a contract between the ceding insurance company and the reinsurer who agrees to accept the risks of a predetermined class of policies over a period of time. Treaty, considers multiple policies of a specific class of insurance issued by an insurance company (cedent) and indicates the companies will work together longer term. Treaty reinsurance frees up the capital of the ceding company and helps augment the solvency margin. It also enables the ceding company to increase the underwriting abilities by reducing the underwriting costs. Treaty reinsurance gives the ceding insurer more security for its equity and more stability when unusual or major events occur. For example, a company that issues homeowners insurance may find that they don’t have enough capital to issue all the policies they desire to. Thus, they could shop for treaty reinsurance to cover a portion of their book of business. For example, if they have capital to support writing 75 million in policies, but wish to write 100 million in policies, they will need to secure treaty reinsurance for the 25 million deficit. The reinsurer will accept risk for the 25 million that is reinsured, even if the policies haven’t been written yet. Treaty reinsurance has unique benefits. When entering a treaty reinsurance policy, a ceding company is typically engaging in a long-term relationship with a reinsurance company. Reinsurance companies tend to prefer this type of reinsurance as it typically involves a higher volume of business. The ceding company retains more control of their underwriting process with treaty reinsurance because the reinsurance company isn’t involved in the process of underwriting each individual policy. #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful

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