Treaty Reinsurance

Product

Treaty reinsurance is a contractual agreement between an insurer (cedant) and a reinsurer, where the reinsurer agrees to underwrite a specified portion of the insurer’s portfolio of risks. These agreements allow insurers to manage their risk exposure, increase underwriting capacity, and stabilize financial results.

Proportional Treaty
A proportional treaty is a type of reinsurance agreement where both the reinsurer and the ceding insurer (the original insurer) share the premiums and losses in a pre-arranged, fixed percentage or ratio. This arrangement provides the insurer with greater capacity to write more business and a share of the profits while the reinsurer assumes a proportionate share of the risk.
- Purpose :
  - Shares risks and premiums proportionally between the cedant and the reinsurer
  - Ensures a consistent distribution of risk and facilitates better capacity management.
- Coverage :
  - The cedant cedes a fixed percentage of each risk to the reinsurer.
  - Proportional sharing applies to both premiums and claims.
- Types :
  - Quota Share Treaty: A fixed percentage of all risks is ceded to the reinsurer.
  - Surplus Treaty: The cedant retains risks up to a predetermined retention limit, and the reinsurer covers the surplus.
- Application :
  Commonly used by insurers entering new markets or lines of business with limited underwriting capacity.

Non-Proportional Treaty
A non-proportional treaty is a type of reinsurance contract where the reinsurer covers the ceding insurer’s losses only when they exceed a predetermined threshold, or “retention limit”. Unlike proportional reinsurance, which shares premiums and losses at a fixed ratio, non-proportional reinsurance focuses on protecting the insurer from large or catastrophic losses by covering the excess amount
- Purpose :
  - Protects the cedant against large or catastrophic losses beyond a specific retentio level.
  - Focuses on limiting the financial impact of significant claims.
- Coverage :
  - The reinsurer only covers claims that exceed the cedant’s predetermined retention amount.
  - Losses are capped at a maximum limit agreed upon in the treaty.
  - Excess of Loss (XL): Provides protection for losses exceeding the retention level for specific events or aggregate losses.
  - Stop Loss Treaty: Protects the cedant’s overall portfolio against aggregate losses exceeding a defined threshold.
- Application :
  Often used for high-risk portfolios, such as catastrophe risks or specialized lines like aviation or marine insurance.

Catastrophe (CAT) Treaty
A Catastrophe (CAT) Treaty is a type of insurance contract where a primary insurer transfers the risk of large, catastrophic natural disasters to a reinsurer in exchange for a premium.
- Purpose :
  Offers protection against catastrophic events, such as natural disasters or major industrial accidents.
- Coverage :
  - The reinsurer compensates the cedant for losses caused by events that impact multiple policies simultaneously.
  - Coverage applies once the total loss exceeds the cedant’s retention level.
- Application :
  Essential for insurers operating in regions prone to natural disasters like earthquakes, floods, or hurricanes.

Aggregate Excess of Loss Treaty
An Aggregate Excess of Loss Treaty is a type of non-proportional reinsurance contract where a reinsurer agrees to cover the losses of a primary insurer (the ceding company) that exceed a specified retention level, but only after the total sum of losses from multiple claims in a given period exceeds a predefined amount.
- Purpose :
  Limits the cedant’s total claims liability over a specified period.
- Coverage :
  - Protects against cumulative losses that exceed a pre-agreed aggregate retention.
  - -Often used to stabilize financial results over time.
- Application :
  Useful for managing portfolios with high claim frequency or volatility.

Risk Excess of Loss Treaty
A Risk Excess of Loss Treaty (Risk XL) is a non-proportional reinsurance agreement where the reinsurer agrees to pay for individual losses that exceed a specific, pre-defined retention amount (the deductible or priority) up to a maximum limit. The originating insurer remains responsible for losses up to the deductible, protecting against catastrophic individual claims
- Purpose :
  Protects against individual large losses from specific risks.
- Coverage :
  - Applies to single risks where losses exceed the cedant’s retention limit.
  - Coverage is on a per-risk basis, not portfolio-wide.
- Application :
  Suitable for high-value policies, such as industrial or corporate property insurance.

Stop Loss Treaty
A Stop Loss Treaty protects an insurance company from too many losses in one year for a specific class of business
- Purpose :
  Protects the cedant’s entire portfolio from aggregate losses that exceed a predetermined percentage of premiums.
- Coverage :
  - Focuses on stabilizing the cedant’s overall loss ratio.
  - Covers both high-frequency and high-severity losses.
- Application :
  Used by insurers with portfolios susceptible to unexpected loss spikes, such as health or motor insurance.

PT. Tala Reinsurance Brokers

Graha Mustika Ratu, 6th Floor
Jl. Gatot Subroto Kav. 74-75
Jakarta 12870

+6221 830 6663

+6221 830 6662

talare@tala-re.com wearetalare