In automatic or treaty reinsurance the direct writer and the reinsurer enter into a master contract this agreement the previous will cede an agreed amount car insurance in texas to the latter. The quantity of risk that the reinsurer must accept on each insured depends upon the treaty. These treaties don’t have a termination period and continue before agreement is cancelled by among the parties.
You can find three basic types of automatic or treaty reinsurance. The very first is quota share in that your reinsurer agrees to simply accept a certain portion of the gross writings of the ceding company. In this arrangement the reinsurer assumes a portion of all risks written by the ceding company and get compensated to cover expenses and produce money. The reinsurer indemnifies the ceding company against a fixed area of loss on each risk covered in the contract .
A second kind of treaty is named surplus share. It differs from quota share in that rather than ceding a share of gross premiums, the reinsured establishes an expert rata retention or “line” about the individual risk and then cedes a portion or multiple of the line.
The third type of automatic or treaty reinsurance is known as more than loss. These treaties generally give the reinsured to deal with all loss as much as the retention arranged. Here the reinsurer only assumes risks exceeding the retention limit. Under the quota basis, the reinsurer assumes an integral part of every risk insured; during excess treaties the reinsurer only assumes that part of a loss of revenue over the retention limit.
If the cedant’s net retention is $100,000 and also the excess coverage is made for $200,000, the agreement would be expressed as $200,000 excess of $100,000. For instance, a $200,000 loss practical knowledge. The cedent would pay $100,000 and the reinsurer would spend the money for remaining $100,000. However, if a $225,000 loss occurs, the cedant would pay $100,000. The reinsurer would pay $100,000, and also the remaining $25,000 of loss reverts returning to the cedant. Read more here.
Pre-arranged excess reinsurance agreements have several functions in accordance: (1) they protect the cedant against large losses which arise from policies issued; (2) they encourage the cedant to limit its quantity of maximum probable loss to a predetermined level which may be safely absorbed by the cedent’s financial structure and premium volume; (3) they stabilize the cedant’s loss ratio by allowing heavy losses to be spread during a period of years.