Glossary of Terms
Automatic Excess Reinsurance
Each policy that the ceding company issues which falls within the definition of the reinsurance treaty is automatically ceded to the treaty. The reinsurer agrees to indemnify the ceding company for losses that exceed a specified retention. The ceding company pays for all losses within the retention and the reinsurer pays the excess.
Automatic Quota Share Reinsurance
The insurance amount, premium and losses under a primary contract of insurance are shared between the ceding company and the reinsurer in an agreed proportion. This arrangement provides for a ceding allowance to be paid by the reinsurer to the ceding company to cover administrative costs in issuing the original insurance.
The primary insurer negotiates a separate contract with the reinsurer for each policy it wishes to reinsure. In facultative reinsurance, the ceding company retains the right to purchase or not to purchase reinsurance on an individual risk and the reinsurer retains the right to provide or not to provide reinsurance on any risk. The terms of each individual facultative reinsurance agreement are negotiable between the two parties as to amounts of insurance or loss ceded, premiums and commissions.