ARe key terms

An allowance paid by the reinsurer to the ceding insurer to cover part of the insurer's acquisition and administrative costs, often expressed as a percentage of ceded premium and sometimes adjusted by experience.

The portion of an insurer's original premium that is transferred to a reinsurer in exchange for assuming the corresponding risk under a reinsurance agreement.

The amount of risk or liability an insurer keeps for its own account after ceding business to reinsurers, stated as a dollar limit, percentage, or both.

A proportional reinsurance arrangement in which the reinsurer accepts a fixed percentage of every risk written within the treaty's scope, and receives the same percentage of premium.

A proportional arrangement in which the insurer retains a fixed dollar amount per risk and cedes the excess up to one or more line capacities, with premium shared in the same proportion as liability.

Reinsurance in which the reinsurer shares a predetermined percentage of premiums and losses on the covered business, as opposed to covering losses only above a stated threshold.

Non-proportional reinsurance in which the reinsurer pays the portion of each loss that exceeds a stated retention, up to a specified limit, in return for a negotiated premium.

The loss or retention level at which a reinsurance layer begins to respond; losses below this amount are borne entirely by the ceding insurer.

The upper limit of a reinsurance layer, calculated by adding the layer's limit to its attachment point; losses above this level fall outside that layer's protection.

A defined band of coverage within a reinsurance program, bounded by an attachment point and an exhaustion point, often placed with different reinsurers at different levels.

A reinsurance layer that attaches at a relatively low level and is expected to respond to losses with some frequency, as distinct from remote catastrophe layers.

Reinsurance protecting an insurer against the accumulation of many losses arising from a single event, such as a hurricane or earthquake, typically written on an excess of loss basis.

Reinsurance of an individually offered and individually accepted risk, allowing either party to accept or decline each submission rather than being bound by a treaty.

A standing agreement under which the reinsurer automatically accepts all business falling within defined parameters, and the insurer is obligated to cede that business.

A hybrid arrangement in which the reinsurer must accept any risk the insurer chooses to submit within the agreement's scope, while the insurer decides which risks to cede.

The primary insurer that transfers part of its risk and premium to a reinsurer under a reinsurance agreement; also called the cedent.

The company that assumes risk from a ceding insurer under a reinsurance agreement and is obligated to pay covered claims in accordance with its terms.

The transfer of risk by a reinsurer to another reinsurer, functioning as reinsurance for reinsurers and helping spread large or concentrated exposures further through the market.

A reinsurer that assumes risk ceded to it by another reinsurer through a retrocession agreement.

The maximum amount of risk an insurer or reinsurer is willing and financially able to accept, whether per risk, per event, or in aggregate.

The maximum limit a reinsurer will accept on a single risk under a surplus share treaty, usually expressed as a multiple of the ceding insurer's retention.

A ceding commission that varies with the loss experience of the treaty, rising when losses are favorable and falling when losses are poor, within agreed minimum and maximum levels.

An arrangement under which the reinsurer returns to the ceding insurer a share of treaty profit, calculated according to a formula defined in the contract.

Incurred losses divided by earned premium over a period, expressed as a percentage; a core measure of underwriting performance for both insurers and reinsurers.

The sum of the loss ratio and expense ratio; a result below 100 percent indicates an underwriting profit before investment income.

Underwriting expenses divided by net written premium, expressed as a percentage and used alongside the loss ratio to gauge operating efficiency.

A method of pricing excess of loss reinsurance that estimates expected losses in a layer from historical loss data, then adds loadings for expenses, profit, and risk.

The reinsurance premium for a layer divided by the layer's limit, expressing the cost of the cover as a percentage of the amount protected.

The provision allowing a reinsurance limit that has been reduced by losses to be restored, often in exchange for an additional premium calculated pro rata.

The maximum total amount a reinsurer will pay across all losses during the contract period, regardless of per-occurrence limits.

A treaty clause obligating the reinsurer to abide by the ceding insurer's good-faith claim settlements and underwriting decisions within the scope of the agreement.

A treaty provision under which the reinsurance incorporates the terms and conditions of the ceding insurer's underlying policies, so the reinsurer's obligations mirror the original contract.

The principle requiring both parties to a reinsurance contract to disclose all material facts fully and fairly, forming the basis of a valid and enforceable agreement.

Information that would influence a prudent reinsurer's decision to accept a risk or set its terms, and which must be disclosed by the ceding insurer.

The documented text of a reinsurance agreement setting out scope, limits, exclusions, premium, commissions, and claims provisions that govern the parties' obligations.

The document on which a reinsurance placement is described and subscribed, recording the risks, terms, and the share each subscribing reinsurer has accepted.

A placement model in which several reinsurers each accept a percentage of the same risk, with one acting as leader to negotiate terms on behalf of the group.

An independent assessment of a reinsurer's financial strength, used by ceding insurers to confirm that the counterparty can meet its claim obligations over time.

The risk that a reinsurer fails to pay claims as agreed, leaving the ceding insurer exposed to losses it believed were transferred.

The reduction in an insurer's statutory liabilities or capital requirements allowed for reinsurance, typically granted only when the reinsurer meets specified collateral or licensing standards.