Reassuring Your Future, Reinventing Insurance

Commercial reinsurance involves a contract where one insurance company (the ceding company) purchases insurance coverage from another company (the reinsurer) to manage its risk exposure. This process helps insurance companies stabilize their financial situation, spread their risk, and protect themselves from significant losses.

Commercial reinsurance offers several benefits, including improved risk management, enhanced financial stability, and the ability to cover larger risks or a higher volume of risks without significantly increasing capital reserves. This can lead to more competitive insurance rates and products for your business.

There are primarily two types of commercial reinsurance agreements: Treaty Reinsurance, which covers a category of risks over a specific time period, and Facultative Reinsurance, which is negotiated separately for each risk or policy.

While commercial reinsurance is very versatile and can cover a wide range of risks, the specifics depend on the agreement between the ceding company and the reinsurer. Certain exclusions or limitations may apply based on the nature of the risk, the agreement’s terms, and the reinsurer’s risk appetite.

The cost, or premium, for commercial reinsurance is typically determined based on the type and amount of risk being transferred, historical loss data, the reinsurer’s expenses, and the market conditions. Pricing can vary significantly based on these and other factors.

In proportional reinsurance, risks, premiums, and losses are shared between the insurer and reinsurer according to a predetermined percentage. Non-proportional reinsurance, such as excess of loss reinsurance, involves the reinsurer paying out only when the insurer’s losses exceed a specified amount.

The claims process in reinsurance involves the ceding company submitting a claim to the reinsurer after a loss event occurs and the ceding company has paid the claim to the insured party. The reinsurer then evaluates the claim based on the reinsurance agreement’s terms and pays the valid claim amount to the ceding company.

Typically, commercial reinsurance is a transaction between insurance companies rather than between a business and a reinsurer. Businesses purchase insurance policies from insurance companies, which may then use reinsurance to manage their risk exposure.

A reinsurance treaty is an agreement between an insurer and a reinsurer that specifies the terms under which the reinsurer will cover a portion or all of the insurer’s policies within a particular category of risk for a defined period.

Selecting a commercial reinsurance provider should involve considerations such as the reinsurer’s financial strength and stability, expertise in your particular risk areas, and their track record for claims handling and payouts. Consultation with an experienced broker or industry specialist can also provide valuable guidance.