Capital Diversification Rule: Gross premium volume / Capital + Loss reserves = approximately 200 percent.
If we over-rely on reinsurance as a source of capital, we may face higher financial costs (potentially through dependence on reinsurers). Implementing such a condition is a way of ensuring that capital is largely in line with our total non-reinsurance risk. This law is also a guideline on liquidity.

Upon proportional reassurance, the overall risk exposure (net capacity) would be in line with the risk premium, otherwise non-proportional reassurance will tolerate too much risk:
Net Capacity/Net Premiums < 10%

The amount of risk retained after incremental reinsurance will be too high. To order to minimize net loss, we should complete non-proportional reinsurance. In fact, we are seeking to stop a single argument having no more than 2% effect on the cumulative ratio:
Net Non-Prop. Retention/Net Premiums approx 2%

In the first case, it demonstrates that, in exchange for remuneration, the reinsurer makes a clear contribution to the liability faced by the transferor. Reinsurance is also compensation to the insured. It also reveals that insurance and reinsurance operations, which are similar on an economic basis, are simply legal in nature.

Under French regulation, reinsurance contracts are not insurance guarantees and, on the other hand, reinsurers are not insurance agencies. Reinsurance pacts are not insurance agreements. In France, Provision L 111-1 of the Insurance Code specifies that reinsurance activities are exempt from the application of the legislation on insurance contracts. The same is true for most foreign laws.

This can be interpreted, on the one hand, by the large scale of the insurance provider market there and, on the other side, by the reality that North America is heavily vulnerable to natural hazards and liability threats.

Historically, Germany, the United states and Switzerland are the three most important residences for reinsurance firms. Nevertheless, Lloyds of the London sector is still a major player and a large supply has been established in Bermuda over the last 25 years. Monoline firms, specializing in natural disasters, were initially founded there for tax and regulatory purposes.

Obligatory reinsurance preserves the balance of the contracting parties. With such conventions, the word “obligatory” is also removed. During these activities, the transferor decides to cede all or part of the risks under a given category or subcategory for a specified time in compliance with the protocols laid down, and the reinsurer is obligated to recognize all cessions.

Historically, facultative reassurance is the first method of coverage. The goal of the Treaty is a defined risk, already evaluated by the insurer who delegates his analysis to prospective reinsurers. The transferor offers to cover this risk, which may be agreed in full or in part by one or more sector reinsurers.

In the case of other cases , for example involving qualified criminal responsibility, the dates of occurrence of the occurrences giving rise to them and the filing of claim of the insured may be somewhat different. The case for lawsuits resulting from ailments caused by asbestos. When the Treaty is based on claims made, the claims asserted within the time protected by the Treaty shall come under the meaning of the Treaty.

The technical definition of the risks covered (e.g. criminal responsibility, vehicle), the geographical position of the risks covered (e.g. the entire globe, mainland France), and the coverage span must be specified. In the case of other cases, for example, involving qualified criminal responsibility, the date of occurrence of the occurrences giving rise to them, and the filing of the claim of the insured can be very different.

In a number of divisions, the period between the submission of the lawsuit and its actual resolution by the transferor is between 2 to 3 years. In the case of the largest claims, which are usually the most confident, this period can also be much longer. At this time, the transferor shall have a receivable from the reinsurer equal to the amount expected to have been ceded, bearing in mind the determination that might be made of the claim.

The transferor collects premiums and makes payments on a regular basis over the accounting period. The reproduction of these cash flows in real-time for the allocated portion will produce tremendous accounting costs.

In France, these are of three types: the reinsurer may make a “cash contribution,” which entails, in fact, supplying the lender with a loan whose repayment relies on the payment of his obligations to the insured. It can also assign securities (generally high rate obligations) to the benefit of the insured. Eventually, a bank guarantee may be issued.

In the most simple nature, if the result is favorable, a certain amount of the final outcome of the settlement is to be returned to the transferor. In addition, this provision is multi-year and calls for an unlimited forwarding of damages.

Audit: Some treaties set out how reinsurers will perform audits in the cedant premises. Such rules are seldom seen in practice. It appears when the reinsurers participate specifically in the administration of the lawsuit and, in this situation, have access to complete details in the hands of the transferor.

A kind of benefit sharing that is often widespread in non-proportional reinsurance is the “no claims bonus.” A set amount shall be returned to the transferor if no incident causing payout from the reinsurer has impacted the deal.

The Proportional Reinsurance Treaties are so-called because they are built in order that:
Ceded Premiums / Gross Premiums = Ceded Premiums / Gross Claims
The premium delegated and the rate of entitlement are equal.

The Proportional Reinsurance Treaties are so called because they are intended to guarantee that the premium given and the rate of exemption are equivalent. The two types of Proportional Reinsurance treaties are the quota-share arrangement and the surplus arrangement.

The benefit of this Agreement is the simplicity with which it can be enforced and handled. For a quota-share, the transferor and the reinsurer have almost the same S / P ratio. This property is indeed a double-edged one.

When the fee rate is equal to the transferor ‘s cost rate, the arrangement is completely proportionate: Ceded Premiums / Gross Premiums = Ceded Claims / Gross Claims = Net Result / Gross Result. If it is lower, the insurer yields more profit than the business activity. When it is higher, by reinsuring, the insurer can improve its business productivity (result / net activity).

The arrangement is a multi-year deal which usually extends from 3 and 8 years. The rate of cession and the fee rate declined dramatically in time. The high initial transfer rate lowers the initial funding requirements of the transfer company.

Surplus treaties refer to categories under which the insured interest is specified without any confusion (fire, robbery, death). This is effectively a quota allocation, the transition rate of which is not determined until the Agreement is concluded but is measured on a risk-by-risk basis after the contract is signed.

The benefit of the surplus of the quota-share is that it helps one to predict the risk profile of the retention with more precision: the higher the probability of the transferor, the better it yields.

The issues of moral hazards are mitigated: the insurer and the re-insurer have reasonably congruent interests and the fact that they are insured does not cause the transferor to conduct in a way that is adverse to the re-insurer if the cost of retention is appropriate. In addition, this correlation in result is not the most efficient way to reduce the uncertainty of the net portfolio.

As the names indicate, non-proportional reinsurance includes all treaties which, by reason of their creation, do not satisfy properties of similarities between the prices of the premiums granted and the claims issued.

Its explanation of triggering the payments of the reinsurer. The principle of event is central to this interpretation. In the case of a storm warranty, the incident is a mixture of claims related to winds of extreme severity which the insured has sustained in a given geographical area within a given duration, usually seventy-two hours. Consequently, the case as described in the contract is not the same as the weather event.

So far as vehicles are concerned, the incident affecting many policy holders of the company would usually be deemed to be a single occurrence from the point of view of reinsurance, while from the point of view of direct compensation, there are typically as many vents as the policy holders involved.

Excess-of-loss policies are, in all ways, similar to regular insurance plans with a premium and minimal commitment from the insurer. In the case of an excess-of-loss deal aXSb, the liability of the reinsurer shall be the following sum of the expense x of the incident protected by the protection of the treaty:
Min (max( x-b, 0),a

The reinsurer shall interfere if the risk of the case is greater than b. It shall then pay the costs of the event subject to deductible b, but not more than a sum. Accordingly, the term aXSb means that the reinsurer spends at most a portion of the sum approaching b. For reassurance jargon, b is the Treaty priority; an is the Treaty guarantee; and + b is the Treaty limit.