What is a Reinsurance Assisted Placement
A reinsurance assisted placement is reinsurance business developed through the assistance of a reinsurance company.
BREAKING DOWN Reinsurance Assisted Placement
Reinsurance assisted placements have the reinsurer offer matching funds to the original sale, which may have been made by a broker or agent. The reinsurer works in this case with the insurer, who may or may not cede its policies. In any case, the insurer works in cooperation with the reinsurer in a reverse flow arrangement.
The insurance company is therefore indemnified by ceding its policies to the reinsurer. The reinsurer, in turn, gets an allotment of the premiums the insurer collects as the underwriter. This arrangement flows from the insurer to the reinsurer. The reinsurer, then, relies on much of its income from the premiums ceded by insurers. This arrangement encourages reinsurers to drum up new business for their partnering insurers. Therefore, some reinsurers will form relationships with brokers and agents who are working in one sector and direct them all to their partnering insurer.
In fact, in a reinsurance assisted placement, the reinsurers themselves act as a type of broker between all of the parties that have sold insurance policies. This differs from the typical business flow, where the insurer underwrites policies and then turns to a reinsurer.
It’s important to note that the insurer isn’t always required to cede the policies formed through a reinsurance assisted placement. The choice to cede or not cede policies will depend on the kind of reinsurance arrangement. Treaty reinsurance, for instance, requires the insurer to cede its policies automatically. Yet, in facultative arrangements where the insurer is not required to cede policies garnered from these placements, the reinsurer can generally feel assured of reaping benefits because the insurer is happy to get the new influx of business.
Defining and Comparing Types of Reinsurance
Reinsurance is also called stop-loss insurance or insurance for insurers. Reinsurance is defined as insurers transferring some portion of their commitments to other parties. This practice reduces the risk that the insurer will have to issue a large payment in an insurance claim.
Finite risk reinsurance, for example, is a type of reinsurance that stipulates a finite level of risk to the reinsurer. The risk can be lowered by accounting methods. When an insurer transfers less risk to the reinsurer, the insurer has its potential claims covered at a lower cost than it would otherwise.
In contrast, clash reinsurance gives an insurer additional coverage in the event that one casualty loss event leads to more than one policyholder filing a claim. Clash insurance lowers the potential maximum loss on a single risk or a bigger number of risks. Clash reinsurance has a broad range of applications; it may be applied to acts of god or to business and market catastrophes.
Spot reinsurance only covers one area of risk and allows the insurer to receive coverage for a subsection of its policies that are considered riskier than its book of business taken as a whole.