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ILLINOIS CAPTIVE & ALTERNATIVE RISK FUNDING INSURANCE ASSOCIATION
ReinsuranceDefinitionReinsurance is the insurance of insurance companies.
For a captive or risk retention group the transfer of risk would be through
reinsurance. The parties transfer risk either on individual policies of
insurance called facultative reinsurance or by reinsuring entire blocks
of business called treaty reinsurance. The two most common forms for reinsurance
are proportional and non-proportional, also called excess. Proportional
relates to the sharing of premium and losses in the same percentage while
non-proportional involves a negotiated premium with reinsurance coverage
above a specific amount called a retention. Advantages:
Disadvantages:
How it works:The reinsurance contract is negotiated between the ceding company and the reinsurer. For a proportional reinsurance treaty, the ceding company receives a ceding commission from the reinsurer as reimbursement for the ceding company s acquisition costs. Premium and losses under proportional treaties are usually reported collectively in periodic statements. Under excess treaty reinsurance contracts, the reinsurance premium is a negotiated percentage of the premium for all insurance subject to the treaty. Losses are reported to the reinsurer on an individual basis.
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