In a reinsurance contract, why would two parties split a premium and not have the entire thing paid by the party looking to reinsure? (i.e. a Company seeks reinsurance in the market for the possibility of extremely large claims, but they pay 80% of the premium and the party that writes the reiinsurance pays the other 20%). Can any insurance gurus explain this to me? I don't see what incentive the re-insurer has for paying the remaining 20% of the premium.

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Posted by Iowa Golfer

Heaven

Member since Dec 2013

10229 posts

Posted on 6/17/14 at 6:39 pm to JumpingTheShark

Give me an example of where an re insurance carrier would ever "pay" part of the insurance carrier's premium they are reinusring.

Most often these policies, whether facultative or treatise, are auditable.

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Posted by GenesChin

The Promise Land

Member since Feb 2012

37706 posts

Posted on 6/17/14 at 7:53 pm to JumpingTheShark

Reinsurers are required for insurance companies. They help fill in gaps for mandated reserves as well as not exposing companies to large amounts of risks. Especially with DOIs emphasizing black swan events, reinsurers are becoming more important

The rationale for reinsurers is that they have the most complete data of any insurance company when it comes to risk. Due to sharing of information on claims experience with companies they reinsure. Their actuarial models are magnificent typically.

Also they reinsure for a premium. They get to enjoy the premiums without having to support a large sales force and marketing

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Posted by Skin

Member since Jun 2007

6370 posts

Posted on 6/17/14 at 9:54 pm to JumpingTheShark

Yeah, that doesn't make sense at all. The business of the reinsurer is to get premium dollars ceded to them. Not them actually paying a portion of the premium. There's no transfer of risk in that instance.

Maybe you're confusing w/ a quota share treaty. Quota share is when the insurer and reinsurer split premiums and losses by the same predetermined rate. But again, the reinsurer is not paying any premiums out of pocket.

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Posted by JumpingTheShark

America

Member since Nov 2012

22884 posts

Posted on 6/17/14 at 11:17 pm to Skin

These are all very helpful responses. Ill be doing a little more reading and get back to yall. Thanks

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Posted by Mr.Perfect

Louisiana

Member since Mar 2013

17438 posts

Posted on 6/18/14 at 12:48 am to JumpingTheShark

Im thinking you must be looking for ceded premium

IRMI dictionary

Would need more specifics on what the scenario is you are looking at.

ETA the more I think about it that is still moving money to the reinsurance carrier and not the other way. My reply was more of a "things that could be confusing you" reply.

I agree with the above post about it likely being a quota share

This post was edited on 6/18/14 at 12:52 am

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