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Facultative Reinsurance Runoff Transaction Completed for Workers Comp

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November 01, 2018

Randall & Quilter Investment Holdings Ltd. (R&Q) has issued a facultative reinsurance certificate to a large US property-casualty insurer. The collateralized reinsurance policy was written from a cell within R&Q's wholly owned subsidiary, R&Q Quest Insurance Limited.

The underlying liabilities covered by the reinsurance relate to the deductibles of workers compensation policies issued between 2013 and 2016 to a US corporate. This policy allowed the insurer to commute the deductible coverage with the corporate, therefore providing full finality to the corporate while remaining fully collateralized.

Ken Randall, chairman and CEO of R&Q, explained, "We are pleased to complete another facultative reinsurance with a large US carrier. This transaction is yet another example of R&Q's innovative structures which allowed the carrier to provide full finality to its client through a partnership with R&Q."

Steve McElhiney, president and CEO of EWI Reinsurance, in the book Fundamentals of Reinsurance and Reinsurance Markets, published by International Risk Management Institute, says the following of facultative reinsurance. 

Facultative reinsurance allows primary insurers to purchase reinsurance applicable to individual risks, which provides more specific protection. It is appropriate in a variety of circumstances. It is often utilized to supplement the scope of coverage or to provide increased limits above the treaty coverage. Facultative reinsurance may also be obtained to provide limited coverage for certain risks that are not afforded coverage under treaty reinsurance (i.e., when a particular risk is excluded from the treaty agreement). In addition, facultative placement may be sought when a particular individual risk is anticipated to be unusually volatile, in an effort to protect the treaty results. Further, facultative reinsurance is often used to "protect the treaty" by carving out unusual risks with potentially higher volatility. Finally, facultative reinsurance can be used to spread a primary insurer's risk that is retained within other existing reinsurance.

Facultative reinsurance ("FAC") can be obtained from either an intermediary (broker) or on a direct basis (that is, directly from the reinsurer). The FAC placement can be either on an excess of loss basis or on a proportional (quota share) basis, depending on need. FAC is provided for both property and casualty placements. The pricing of FAC is usually a derivative of the underlying policies and is tailored to the needs of the specific placement. For example, an insurer may want to only reinsure the largest trucks in a fleet or only certain drivers with poor driving records.

Fundamentals of Reinsurance and Reinsurance Markets

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