Reinsurance Glossary
Accredited Reinsurer – A reinsurer that is not licensed in a state but demonstrates that it meets the financial conditions of the state, is licensed in at least one state, and submits to the state and allows its books and records to be examined. A direct writing insurance company will receive full statutory reserve credit for reserves ceded to an accredited reinsurer.
Authorized Reinsurer – A reinsurer which is licensed or accredited in the ceding company’s state of domicile. A direct writing insurance company will receive full statutory reserve credit for reserves ceded to an authorized reinsurer.
Automatic – A direct insurer may cede business to a reinsurer on an automatic basis within certain parameters without submitting policy-specific underwriting papers to the reinsurer for approval. Generally the parameters include a limited face amount which may vary by age and rating of the insured.
Back to top
Binding Limit – The amount of risk on a given life which the ceding company can automatically cede if all other conditions are met.
Back to top
Ceding Company – An insurer which underwrites the original primary policy to an insured and cedes a portion of the risk to a reinsurer.
Coinsurance – A reinsurance arrangement in which the ceding company transfers all or a percentage of the entire risk to the reinsurer and coverage is in the same form as that of the direct policy issued to the insured. The reinsurer receives its proportionate share of the gross premium from the ceding company and is responsible for establishing its proportionate share of the reserves and payment for its share of the death benefits.
Back to top
Excess Reinsurance – A reinsurance arrangement in which risks are ceded to the reinsurer in excess of a direct writer’s retention limit. The retention limits usually vary by age and underwriting classification.
Back to top
Facultative – If a case does not meet the automatic terms of a reinsurance treaty, the reinsurer must approve each individual risk before it has any liability.
Financial Reinsurance – A reinsurance arrangement where the primary purpose is to achieve a specific financial objective such as increasing statutory surplus, reduce taxes or acquire blocks of business. Financial reinsurance does provide risk transfer but it is a secondary purpose of the arrangement.
Back to top
Jumbo Limit – A limit frequently included in automatic treaties on the total amount of life insurance on an individual insured. The most common definition used in the industry today is the total amount of life insurance inforce and applied for in all companies may not exceed the jumbo limit. Amounts to be replaced are generally included.
Back to top
Letter of Credit – A financial guarantee provided by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party. A letter of credit (LOC) is typically used in reinsurance arrangements to permit reserve credit to be taken for business ceded to a non-admitted reinsurer.
Back to top
Minimum Cession – Some reinsurance treaties include a minimum amount of business that may be ceded to the reinsurer on an automatic basis. The purpose is to avoid the cost of administering very small cessions.
Back to top
Net Amount at Risk – The excess of the death benefit of a policy over the policy reserve or the policy fund value.
Back to top
Point in Scale YRT – The YRT premium rate based on the insured’s original age and current duration.
Pool – A method of allocating reinsurance among several reinsurers whereby each reinsurer is allocated a specific percentage of each risk ceded to the pool.
Back to top
Quota Share Reinsurance – A reinsurance arrangement in which a fixed percentage of each risk is ceded to the reinsurer.
Back to top
Recapture – The process of a direct writer recovering liabilities previously ceded to a reinsurer.
Retrocede – The process of ceding reinsurance risks assumed by a reinsurer to another insurance company.
Back to top
Stop-Loss – Reinsurance coverage for the portion of an insured’s aggregate losses in excess of a pre-determined level.
Surplus Relief – A common use of financial reinsurance whereby the reinsurer provides the ceding company with assets or reserve credits in order to improve its current statutory earnings and surplus position. Surplus relief provides an increase in the direct writer’s statutory surplus in the year the relief is given and a corresponding reduction for the reinsurer. Repayment of the relief is through the direct writer’s future earnings.
Back to top
Traditional Reinsurance – A reinsurance arrangement where the primary purpose of the reinsurance is to transfer the risk from the direct writer to the reinsurer.
Treaty – A legal contract defining the terms of the reinsurance arrangement signed by representatives of both parties.
Back to top
YRT Reinsurance – Under Yearly Renewable Term (YRT) reinsurance, the ceding company cedes only the mortality risk to the reinsurer. The premium rates under a YRT agreement are not directly related to the original plan of insurance. The amount reinsured each year is based on the Net Amount at Risk. The ceding company retains responsibility for establishing reserves and the payment of all policy benefits.
Back to top
|
