Reinsurance

Excerpt from preface: The purpose of reinsurance begins with the desire and ability to insure with others part or all of what one has already insured. The object may be one essentially of sharing risk, and this objective is how rein-surance first began. The reinsurance of part or all of a risk insured under a single policy is called facultative, or specific reinsurance. In keeping with this object of sharing, all reinsurance was orginally arranged on a proportional (or "pro rata") basis. An agreed percentage of a policy (and loss falling to it) was reinsured in return for the same percentage of the original premium (the "reinsurance" premium). Ordinarily, the reinsurer reimbursed the insurer for its allocable cost of acquiring and producing the policy by allowing a "ceding commission" appropriate to that cost or expense, expressed as the percentage of the reinsurance premium. Ceding commissions remain a frequent characteristic, an almost universal one with proportional reinsurance. In later years, it was found possible and convenient to define certain kinds and amounts or shares of policies which could be reinsured routinely or as a group (or "portfolio") under a general or wholesale agreement at much less cost than reinsuring them one by one, and with a far higher degree of certainty that the reinsurance would be available. With this concept, the so-called reinsurance "treaty," or "agreement," or "contract" came into general use. The need for facultative was not eliminated because some policies were too large, which is to say they required more "reinsurance capacity" than the treaty allowed, or the policies were of a kind that was not acceptable or not contemplated under the treaty. But most reinsurance came to be done in the treaty manner, and still is. ---THIS BOOK COVERS: The Nature, Purpose and Basis of Reinsurance; Reinsurance Forms and Rates; The Users of Reinsurance; The Techniques of Reinsurance; The Reinsurer as a Business Concern.