What is Lead Reinsurer
The lead reinsurer is responsible for negotiating the terms and rates of a reinsurance treaty that other reinsurers participate in. The lead reinsurer, also known as the lead underwriter, is the first party to sign the reinsurance slip or contract.
- The lead reinsurer is party that negotiates the terms and rates of a reinsurance treaty that other reinsurers participate in.
- The lead reinsurer is generally more knowledgeable, though they are not required to take on the largest share of risk.
- The decisions of lead reinsurer are binding on the other reinsurers who decide to participate.
- The other participants are called following reinsurers. Despite not being in the lead, they enjoy the same level of compensation as the lead reinsurer.
Understanding Lead Reinsurer
While lead reinsurers are responsible for negotiating the reinsurance treaty, they are not required to take the largest share of the risk. They may be granted the authority to modify the reinsurance contract after it is signed, with any modifications considered binding on all other reinsurers. The choice of a lead reinsurer usually depends on their level of expertise and experience. A direct underwriter would most often choose a lead reinsurer with whom risks can be placed faster.
The other participating reinsurers subscribing to the contract are known as followers. In an alternative arrangement, one reinsurer can accept the whole of the reinsurance and then retrocede it in a further reinsurance arrangement.
Reinsurance contracts establish the relationship between the ceding insurer and the reinsurer, and outline the risks that the reinsurer will indemnify the cedent on and the fee that the ceding company has to pay for coverage. The basic details of the contract are outlined on a "slip," which tends to be shorter than a standard insurance contract because both parties are generally considered to be sophisticated.
It is not uncommon for multiple reinsurers to participate in a single reinsurance contract. They may join together in order to gain exposure to a particular risk without being responsible for indemnifying the insurer for the entire risk, or because the overall risk is too great for any one company.
When this happens a lead insurer—typically the most sophisticated and experienced reinsurer—acts on behalf of the other reinsurers (called following reinsurers) in negotiating the terms and conditions of the contract. The lead reinsurer also tends to have the best reputation of the group of reinsurers, thus making it the most likely to be respected.
Lead Reinsurer vs. Following Reinsurer
A following reinsurer is a reinsurance company that jointly signs onto a reinsurance treaty with other reinsurance companies, but is not the reinsurer that negotiated the terms of the agreement.
A following reinsurer is subject to the same terms as reinsurer responsible for the negotiations (the lead reinsurer) and is often a company that has a more narrow expertise than the lead reinsurer. Because the following reinsurer is not privy to the same amount of detail as the lead reinsurer during negotiations, the lead insurer is typically prevented from being compensated differently than the following reinsurers.