What is 'Yearly Renewable Term Plan of Reinsurance'

A yearly renewable term plan of reinsurance is a type of life reinsurance where mortality risks are transferred to a reinsurer. In the yearly renewable term plan of reinsurance, the primary insurer (the ceding company) yields to a reinsurer its net amount at risk (the difference between the face value and the cash value of a life insurance policy) for the amount that is greater than the retention limit on a life insurance policy to a reinsurer. If the insured dies, the reinsurance pays the portion of the death benefit that is equal to the net amount of risk. Also called yearly renewable term (YRT) or risk premium reinsurance basis.

BREAKING DOWN 'Yearly Renewable Term Plan of Reinsurance'

Reinsurance allows insurance companies to reduce the financial risks associated with insurance claims by spreading some of the risk to another institution. A yearly renewable term plan of reinsurance allows the primary insurance company to spread some of the risk involved in a life insurance policy to another institution. The premium paid by the ceding company for the reinsurance varies based on the policyholder's age, plan and policy year.

How Yearly Renewable Term Reinsurance is Used

Yearly renewable term reinsurance is typically used to reinsure traditional whole life insurance products and for universal life. Term insurance wasn't always reinsured on a YRT basis. This is so because coinsurance made for a better match of reinsurance costs with premiums received from the policyholder on level premium term products. It also passed the risk of the adequacy rates along to the reinsurer. As alternative capital solutions have become more popular, YRT became a more popular method of reinsuring term insurance.

YRT is usually the best choice when the goal is to transfer mortality risk because a policy is large or because of concerns over claim frequency. YRT is also simple to administer and popular in situations where the anticipated number of reinsurance cessions is low. YRT is also good for reinsuring disability income, long-term care and critical illness risks. However, it does not work as well for reinsurance of annuities.

Since YRT reinsurance only involves a limited amount of investment risk, little persistency risk, no cash surrender risk and little or no surplus strain, reinsurers may have a lower profit objective for YRT reinsurance. Therefore, YRT can usually be had at a lower effective cost than either coinsurance or modified coinsurance. As long as annual premiums are paid, the reserve credit is equal to the unearned portion of the net premium of a one-year term insurance benefit. Yearly renewable term insurance normally does not provide reinsurance ceded reserve credit for deficiency reserves.

  1. Reinsurer

    A reinsurer is a company that provides financial protection to ...
  2. Lead Reinsurer

    The lead reinsurer is responsible for negotiating the terms and ...
  3. Following Reinsurer

    A following reinsurer is a reinsurance company that signs onto ...
  4. Reinsurance Assisted Placement

    A reinsurance assisted placement is reinsurance business developed ...
  5. Cession

    Cession refers to the portions of obligations in an insurance ...
  6. Reinsurance

    Reinsurance is the practice of one or more insurers assuming ...
Related Articles
  1. Insurance

    When Things Go Awry, Insurers Get Reinsured

    Guru Warren Buffett is making this sector popular. Learn more here.
  2. Insurance

    Facultative vs. Treaty Reinsurance: Differences and Examples

    Reinsurance companies offer insurance to other insurers in case the original insurer does not have enough money to pay claims.
  3. Tech

    The Reinsurance Industry: An Inside Look (BRK.A)

    Warren Buffett has a major influence on the global reinsurance market, which has seen momentum in 2016 for higher revenue.
  4. Taxes

    2 Ways Hedge Funds Avoid Paying Taxes

    Learn about two strategies hedge funds use to minimize their tax liabilities. Read why some hedge funds are in the reinsurance business in Bermuda.
  5. Insurance

    World's Top 10 Insurance Companies

    These are the 10 largest insurance companies in the world.
  6. Investing

    Top 6 Companies Owned by Berkshire Hathaway

    Take a look at some of the biggest wholly owned subsidiaries in the Berkshire Hathaway family, and learn just how diversified this holding company has become.
  7. Insurance

    How To Easily Understand Your Insurance Contract

    Understanding your insurance contracts can go a long way in making sure that your advisor's recommendations are on track. Learn how to read yours today.
  8. Insurance

    Should You Buy Term or Permanent Life Insurance?

    When choosing between term or permanent life insurance you'll need to consider these factors.
  9. Insurance

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
Trading Center