FORMS OF REINSURANCE AGREEMENTS

REINSURANCE

Treaty(Obligatory
Facultative reinsurance
Reinsurance)

Proportional Proportional
Reinsurance Reinsurance

Non-proportional Non-proportional
Reinsurance Reinsurance
FACULATIVE REINSURANCE
- Oldest form in which both insurer and reinsurer have an option
- Used when:
- High sum is reinsured
- Non availability of a specific protection under treaty
- Tailor made policies
- Obligatory reinsurance has certain restrictions
- New types of insurance being introduced
OBLIGATORY OR TREATY REINSURANCE
- Most common form
- Reinsurer is obliged to accept the share of risks defined
- Several benefits over facultative reinsurance
- Proportional Reinsurance: Direct
OBLIGATORY TREATIES
insurer and reinsurer divide premiums
as well as losses among them in the
ratio decided contractually.
Proportional Non Proportional
Proportional Reinsurance can be Reinsurance Reinsurance
further divided into:
- Quota Share Reinsurance
- Surplus Share Reinsurance Quota Share Treaties
Per risk excess of
loss
- Non Proportional Reinsurance:
Reinsurer pays all or a pre-
determined percentage of the Surplus Share Per event excess of
claims that lie between a specific Treaties loss
upper and lower limit. Can be
divided into:
- Per risk excess(WXLR) Stop Loss
- Per even excess(Cat XL)
- Aggregate Stop Loss
MONITORING OF REINSURANCE
The IRDA( Insurance Regulation and Development Authority)
define a contract of reinsurance as a legally binding document on
both sides that provides a complete, accurate and definite record
of all the terms and other provisions present in the reinsurance
agreement.

- Reinsurance agreements need to be document and filed with

the IRDA within the stipulated time period.
- The mandate to the authority in respect of reinsurance lies in
the provisions Section 14(1) and 14(2) sub section(f) of the
IRDAI act, 1999 as well as Sections 34F, 101A, 101B and 101C of
the Insurance Act 1938.
THE INDIAN REINSURANCE MARKET
- Before nationalization, there was no reinsurance market in India
- After nationalization:
- General Insurance Corporation(GIC) of India
- National Insurance Company Limited
- The New India Assurance Company Limited
- Oriental Insurance Company Limited
- United Insurance Company limited
IFSC: The government of India with the objective of creating high
value jobs from the financial services sector and to create an avenue
into finance globalization had set up International Finance Service
Centre(IFSC) at GIFT city, Gujarat. The IFSC would provide the
required platform for the creation of ‘Reinsurance Hub” in the
country where domestic as well as foreign reinsurance business can
be transacted.
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