What is Special Acceptance

Special acceptance refers to an agreement by a reinsurer to include, under a reinsurance contract, coverage for a risk not automatically provided for in the original contract.

Breaking Down Special Acceptance

Special acceptances are most commonly found with facultative reinsurance agreements. The word facultative refers to something occurring optionally in response to circumstances, rather than by nature. And the term reinsurance refers to insurance taken out by an insurance company to protect itself.

Facultative reinsurance is purchased by a primary insurer to cover a single risk or a block of risks held in the primary insurer's book of business. Facultative reinsurance is one of two types of reinsurance, the other being treaty reinsurance. Facultative reinsurance is considered to be more of a one-off transactional deal, while treaty reinsurance is more of a long-term arrangement.

Reinsurance contracts typically cover a peril or line of business clearly defined in the reinsurance treaty. In a facultative reinsurance agreement, the reinsurance company is able to accept or reject a particular risk on a case-by-case basis, while under a treaty reinsurance agreement the reinsurer automatically provides coverage as long as the peril is listed in the treaty agreement. In some cases, the ceding insurer may cover a peril that falls outside the type of peril normally covered by the contract. In this case, the ceding company will want a special acceptance.

In the law of contracts, the term acceptance refers to one person's compliance with the terms of an offer made by another. Special Acceptance is an acceptance that departs from either the terms of a contract or the terms added to, but not otherwise expressed, within a contract.

Reinsurance Trends

A new growth area within the reinsurance industry concerns climate change, which is arguably one of the highest areas of risk within the overall insurance industry. For example, private-market reinsurance solutions are being developed for handling the increasing number of flood claims globally. Reinsurers have established global data analytics teams, staffed with climate scientists and engineers. These new areas of expertise and their findings are being made available to clients working in a number of areas, including those developing risk-scoring models using predictive analytics to improve risk selection. Another example is the development of claims detection models seeking to improve loss outcomes.

Innovation as a core competency is increasing in importance for reinsurers, and several firms have aligned with Silicon Valley to try and stay ahead of rapid change. As one example, AM Best announced that it will include an assessment of an insurer’s innovation activities in its rating assessments.