Treaty

Facultative

Treaty

Reinsurance Treaties automatically cover all risks written by the insured that fall within their terms, unless they specifically exclude exposures. It does not require to review individual risks, but there should be a careful review of underwriting philosophy, practice, historical experience of the primary insurance company, its attitude towards claim management and engineering control, management's general background, expertise and planned objectives.

Treaties are of two types - Proportional and Non-Proportional.

Non-Proportional Treaty

In this type of treaty, reinsurance cover begins once the amount of the claim exceeds a pre-determined amount. For example, in a contractual language, it is termed as, treaty of Rs. 600 Crores in excess of Rs. 100 Crores, i.e., a Rs. 700 Crores cover with a deductible of Rs. 100 Crores. Now if a loss occurs and if its cost is less than Rs. 100 Crores, then only primary insurer has to consider it. But if the loss is more than Rs. 100 Crores, then liability of primary insurer is up to Rs. 100 Crores, and excess claim should be paid by reinsurance company.

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* Contributed by: -
Jaya Nema,
Faculty - MBA (Finance & Marketing),
Laxmi Narain College of Technology, Indore.