With respect to reinsurance, the insurer can issue policies with higher limits than would normally be allowed, and thus take more risks, since some of that risk is now transferred to the reinsurer. Depending on the language of the contract, excess reinsurance may apply to either all loss events during the insurance period or total losses. Contracts can also use loss bands that are reduced with any right. A basis on which reinsurance is provided for the rights arising from the policies that are used during the period to which the reinsurance relates. The insurer knows that there is coverage throughout the insurance period, even if claims are not discovered or claimed until later. The main forms of non-proportional reinsurance are excess and stoppage loss. Most of the above examples relate to reinsurance contracts covering more than one policy (contract). Reinsurance can also be acquired by policy, in which case it is called optional reinsurance. Optional reinsurance can be established either on a co-payment or on the basis of a surplus of losses. Optional reinsurance contracts are often recalled in relatively short contracts, called discretionary quotas, and are often used for significant or unusual risks that, because of their exclusions, are not part of standard reinsurance contracts. The duration of an optional agreement coincides with the duration of the policy. Optional reinsurance is generally acquired by the insurer that took out the original insurance policy, while contractual reinsurance is generally acquired by an insurance company executive.
The abandonment of reinsurance coverage after the expiry of the period for which it was written. A contract written on a “continue to be cancelled” basis does not automatically shut down, but contains a termination provision. An approach indicating that all losses resulting from an event had a loss date, regardless of the type of coverage (i.e.dem or rights invoked) or the number of losses included, insurance contracts or related periods. The opposite of an interlocking loss trigger. Contract reinsurance is insurance acquired by one insurance company by another insurer. The company that issues the insurance is the Cedent which transmits all the risks of a certain category of policies to the buying company that reinsurer. Excess reinsurance is a form of non-proportional reinsurance. Non-proportional reinsurance is based on loss deduction. In the case of non-proportional reinsurance, the deranging entity agrees to accept all losses at a predetermined level. Reinsurance also allows an insurer to accept policies covering a larger volume of risk without excessively increasing the cost of covering its solvency margins – the amount for which the insurance company`s assets are considered to be higher at fair value. In the event of exceptional losses, reinsurance makes significant liquidity available to insurers.
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