Exploring Reinsurance Products and Transactions
The product map
Candidates must distinguish treaty vs. facultative and proportional vs. non-proportional cover, then place products within that grid.
- Proportional treaty: quota share (fixed percentage of premium and losses) and surplus share (cession varies by the ratio of policy limit to the cedent's retention line).
- Non-proportional treaty: per-risk excess of loss, per-occurrence excess of loss, aggregate excess of loss, and stop loss (annual loss ratio cover).
- Facultative: individually underwritten risks, proportional or excess of loss, used for large or unusual exposures outside treaty terms.
Concepts that drive exam answers
Know retention, cession, cession limit, reinstatement (and whether it is free or paid), attachment point, layer, and co-participation. Understand why a cedent buys each product: surplus share for growing insured values, cat excess for severity, stop loss for earnings protection.
Traps
- Confusing facultative obligatory with treaty.
- Assuming surplus share cedes a fixed percentage - it does not; the percentage moves with the line.
- Forgetting that stop loss responds to an annual loss ratio, not a single loss.
- Mixing up per-risk and per-occurrence triggers in casualty catastrophe contexts.
Rule of thumb
Ask "what is the unit of loss?" - a single risk, a single event, a program aggregate, or a year's ratio. That answer names the product.
Worked example: A cedent retains $500,000 per risk and buys a $2,000,000 excess of $500,000 per-risk cover. A $1,200,000 loss leaves the cedent $500,000 and the reinsurer $700,000.