A reinsurance treaty provides blanket coverage to a cedant for a pre-defined portfolio of insurance business and for a fixed term. In essence, the reinsurer lends its balance sheet to the cedant to write business as if the insurer is using its own capital. This is blind underwriting on the part of the reinsurer and in order to have some comfort in this kind of arrangement, the treaty is then subjected to pre-agreed limits, terms, conditions and exclusions. All business written by the cedant must strictly meet the criteria agreed at inception. In reality, insurers are faced with risks which do not strictly meet the pre-agreed criteria. The underwriter’s obvious option is to seek facultative reinsurance on the open market. However, there are instances where it may not be efficient to purchase facultative reinsurance. The alternative is to seek a Special Acceptance from treaty reinsurers. The lead reinsurer will assess the risk and specifically waiver the criterion which had disqualified the risk from being written into the treaty. The risk is then included in the treaty as if it met all the requirements.

Treaty renewals can be a very stressful process if your statistics are not done properly. The data may frustrate reinsurers whose choice is either to delay providing you the necessary renewal services or to increase their rate for information inadequacy. How do you negotiate your treaties effectively if your data is not reflective of your portfolio composition and performance. There are various statistical tools used in the treaty programming process and one of the critical reports is a risk profile.

The loss occurrence limit refers to the maximum amount payable to the cedant for any one loss causing incident. The incident may cause one loss, multiple losses, or a series of losses. The effect of this clause is to cap the amount payable under the reinsurance contract to the maximum amount stipulated in the reinsurance slip.

Most often, reinsurers do not insert a separate clause to show the loss occurrence cap. The slip may be written as follows: USDXX amount any one loss occurrence, as opposed to just “any one loss”. There is a very big difference between these two versions. Watch out for this one!  

The MUKFIN Team is passionate about delivering value to our selected cedants and reinsurers.