Stop-loss is a non-proportional form of reassurance that functions in the same manner as over-loss reassurance. While the over-loss is related to a single loss number, either perchance or per case, the over-loss is applied to the overall amount of claims of the portfolio.

Either the maintenance and the cap can be expressed as a sum, as a percentage of the premium (classical) or as a percentage of the overall insured amount. Stop-loss is a perfect protection for the insurer. Nonetheless, owing to its variability in pricing and certain knowledge problems, the expense of avoiding failure is usually high, reducing its practical application.

Automatic settlement (or a contractual arrangement or more simply a deal): the re-insured business / risk must be ceded by the transferor in compliance with the terms of the contract and the re-insurer must recognize the re-insured business / risk. An example of this is the Auto Portfolio: all cars financed by the insurer should be covered by the Deal, without having to name any particular individual policy.

Facultative deal (or fac.): individual business / risk is presented to the insurer for approval or refusal by the reinsurer. All sides are able to behave with their own best interests, regardless of any previous contractual agreement. For an example, very big insured properties such as a skyscraper may be re-insured with a facsimile.

Master agreements should be arranged between the insurer and the reinsurer to specify all the legal elements that are applicable to all facultative in order to simplify the management and operation of the insurer.

These contracts are referred to as facOb (optional / compulsory). Thanks to the right to negotiate, any fair reinsurance policy may be assumed, the only limitation is that the insurance liability is passed to the reinsurer.

External reinsurance is provided by the transferor firms for particular risks not protected by their reinsurance treaties, for sums above the nominal limits of their reinsurance treaties and for uncommon risks. Underwriting costs and, in particular, personnel costs, are higher than those in facultative business because each risk is individually underwritten and administered.

For certain purposes (excluding risks), the organization could not be re-assured by a contractual arrangement. Fac instead helps the insurer to increase its flexibility on other risks, by recovering surplus capacity, and the insurer is not involved in part of a specific scheme (not in the subscription guidelines).

Reinsurance is usually directed to take the first place: some possible reassurance, covering particular threats. Any relative arrangement, either Quota-Share or Surplus. Then, any XL reinsurance chance. Any accident or conflict with XL reinsurance. Then, any stop-loss that protects the net results of the reinsurance.

When the transferor gives in by proportional reassurance and then covers the protection with a risk XL, this XL is called XL on protection to indicate that the XL re-insurers often benefit from proportional reassurance.

The most important point of the insurance policy is that it has little effect on insurance policies. Accordingly, from a regulatory point of view, the insurer has the same liabilities against the insured with or without guarantees, as opposed to nominal compensation (in the most common situations where there is no mutual liability).

In a regulatory point of view, the insurer has the same duties towards the insured, with or without reassurance, as contrasted to coinsurance. This is necessary for the insurer to pass its assets to the reinsurer, but it is not known to be a reinsurance undertaking. Such a transition is considered a novation, and permission by the regulator or the insured is normally necessary.

Management of claims is still handled exclusively by the insurer. Collection of claims is carried out exclusively by the reinsurer. This is demonstrated in the case of an insurance hostage and claims handling is done in general.

Crucial actions need to be made during the management of critical claims. Two exceptions are: the case of the loss of significant buildings (for example, the World Trade Center) where the price charged is always agreed Plus the cases of litigation where the complainant offers a compensation bid and the defendant needs to contact the reinsurer in order to determine whether to accept a settlement offer if he supports or denies it.

This may pose issues in the event of securitization, where hedging is not ideal, as we can see. In fact, in the event of legal issues of the insurer, for example in the case of the revision of current contracts by courts, re-insurers are frequently affected, except as specifically specified in the contract.

Law: the official authorities will not have a significant effect on reinsurance. The only rule is that the reinsurance policy must cover the insurance portfolio, the policy: the contract clearly specifies the re-assured portfolio and the exclusions, business practice and confidence: the relationship between the insurer and the re-assurer is a long-term relationship centered on confidence.

Contract: the contract specifically specifies the re-assured portfolio and the exclusions. Market practices are important for reinsurance and depend on the countries concerned. A number of standard clauses occur in all reinsurance contracts in a given region.

Jurisdiction clause: Imagine a deal between a British insurer and a Bermuda reinsurer. The Contracts Act 1990 would mean that, until a contractual arrangement defines the code of law to apply, the law of the place of business of the reinsurer will apply. This contract would then comply with Bermuda ‘s rule, which would be a concern for the British insurer.

Non-profit making organizations have been set up to arbitrate between insurers and reinsurers: ARIAS UK in England, le centre francais d’arbitrage d’assurance and réassurance in France. The arbitration provision specifies the corporation must adjudicate in the case of a claim.

The conventional reinsurance arrangement consists of a placement slip: specifies the re-insured and re-insured individuals, the form of contract, the geographical reach, the risk term (effective and expiry dates), the exposure to risks and the company protected.

Appendices: the appendices contain clauses that are unique to the company covered or even to the contract. Exclusion clauses are instances of this kind of clause.

In the field of securitisation, the documentation consists of: an investor presentation which provides a general view of the transaction, an offer circular containing an offer overview (issuer, transfer agent, arrangement program) and all contract information and a price supplement which describes how the anticipated loss was modelled.

The final net loss is the cumulative amount paid by the insured in the event of failure of the policy (depending on the type of insurance). Nevertheless, the reinsured, in contrast to the insured, may be subject to double insurance.

In the event that other contracts are enforced before a reassurance contract is accepted, such contracts are assumed to be in effect for the purpose of this contract. On the opposite, the underlying provision is the same as that which does not inure to the benefit of the following contracts. In fact, it is part of the primary system (in order to prevent double reinsurance).

Allocated loss adjustment costs (ALAE), i.e. expenses which are specifically related to a lawsuit (e.g. attorneys’ fees), are taken into account in the estimation of the recoveries. On the opposite, the unallocated loss adjustment costs (ULAE) (employee wages, for example) are not taken into account, since they would be incurred whether or not a compensation claim existed.

Notice that the supporting party has the right to seek the reassurance gain even if there is no third party applicant. This is the self-insurance clause: for example, if an insurance firm insures its own properties under one of its own plans, those plans are taken into consideration in the reinsurance contract.

Ex-gratia payments shall be deducted from the total net loss. Ex-gratia payments are payments made by the insurer to the insured for economic purposes. For example, the insurer may compensate the insured though if the loss is excluded from the policy.

It is especially useful in the business sector because there are several multi-site policies (only once in the case of multiple sites with the same policy that are caused by the reassurance deductible). But for organizations specialized in industrial underwriting, plans are risk-based.

If there is an atmospheric disturbance that lasts for 6 days, it would not be treated as one occurrence but as two different events. In addition, because of these clauses, there may be shortcomings. However, in the case of an atmospheric disruption lasting 4 days, the resultant net damage would consider only 3 adjacent days (the option between the first three or the last three days is at the discretion of the insurer).

In the case of CAT Bonds, the clauses describing the event are different and more precise, because investors tend to be familiar with the description of the event and rely on the form of CAT Bond. For eg, in the case of a CAT Bond parametric windstorm, the cluster clause is usually used.