In automatic or treaty reinsurance the direct writer and the reinsurer get into a master contract this agreement the former will cede an agreed amount auto insurance texas towards the latter. The amount of risk which the reinsurer must accept on each insured depends upon the treaty. These treaties do not have a termination period and continue before agreement is cancelled by one of the parties.
You can find three basic kinds of automatic or treaty reinsurance. The foremost is quota be part of which the reinsurer agrees to simply accept a certain area of the gross writings of the ceding company. On this arrangement the reinsurer assumes a portion of risks written by the ceding company and receives a commission to cover expenses and provide a profit. The reinsurer indemnifies the ceding company against a hard and fast number of loss on each risk covered inside the contract .
An additional type of treaty is called surplus share. It differs from quota share with that rather than ceding a share of gross premiums, the reinsured establishes a professional rata retention or “line” around the individual risk then cedes a fraction or multiple of this line.
The next type of automatic or treaty reinsurance is named excess of loss. These treaties generally offer the reinsured to bear all loss up to the retention decided. Here the reinsurer only assumes risks exceeding the retention limit. Under the quota basis, the reinsurer assumes an integral part of every risk insured; whilst in excess treaties the reinsurer only assumes that section of a loss of revenue across the retention limit.
In the event the cedant’s net retention is $100,000 and also the excess coverage is made for $200,000, the agreement would be expressed as $200,000 overabundance $100,000. For instance, a $200,000 loss has experience. The cedent would pay $100,000 and the reinsurer would pay the remaining $100,000. Alternatively, in case a $225,000 loss occurs, the cedant would pay $100,000. The reinsurer would pay $100,000, and also the remaining $25,000 of loss reverts back to the cedant. Read more here.
Pre-arranged excess reinsurance agreements have several functions in keeping: (1) they protect the cedant against large losses which arise from policies issued; (2) they enable the cedant to limit its amount of maximum probable loss to a predetermined level which can be safely absorbed from the cedent’s financial structure and premium volume; (3) they stabilize the cedant’s loss ratio by permitting heavy losses to be spread during a period of years.