Key Reinsurance Structures to Know for Actuarial Mathematics

Reinsurance structures are vital for insurers to manage risk and stabilize finances. By sharing premiums and losses, these arrangements help maintain a balanced risk profile, ensuring that insurers can handle large claims and unexpected events effectively.

1. Proportional Reinsurance

   • Insurers share premiums and losses with reinsurers based on a fixed percentage.
   • Provides a straightforward way to manage risk and stabilize financial results.
   • Encourages reinsurers to monitor the underwriting quality of the primary insurer.

2. Quota Share Reinsurance

   • A type of proportional reinsurance where a fixed percentage of all policies is ceded to the reinsurer.
   • Helps insurers maintain a consistent risk profile and capital management.
   • Reinsurer receives a proportional share of premiums and losses, aligning interests.

3. Surplus Reinsurance

   • Insurers cede only the portion of risk that exceeds a predetermined retention limit.
   • Allows insurers to retain more control over smaller risks while transferring larger exposures.
   • Useful for managing large individual risks without affecting overall portfolio stability.

4. Non-Proportional Reinsurance

   • Reinsurers cover losses that exceed a specified amount, rather than sharing all losses proportionally.
   • Provides protection against high-severity, low-frequency events, enhancing financial stability.
   • Often used to manage catastrophic risks and large claims.

5. Excess of Loss Reinsurance

   • A form of non-proportional reinsurance that kicks in after losses exceed a certain threshold.
   • Protects insurers from significant losses while allowing them to retain smaller claims.
   • Helps in capital management by limiting the maximum loss exposure.

6. Stop Loss Reinsurance

   • Provides coverage for total losses that exceed a specified amount over a defined period.
   • Helps insurers manage aggregate risk and protect against unexpected high claims.
   • Useful for stabilizing financial results in volatile markets.

7. Catastrophe Reinsurance

   • Specifically designed to protect against large-scale disasters that cause significant losses.
   • Often involves a high attachment point to cover extreme events like natural disasters.
   • Essential for insurers in high-risk areas to ensure solvency and operational continuity.

8. Facultative Reinsurance

   • A case-by-case agreement where the reinsurer evaluates and accepts individual risks.
   • Provides flexibility for insurers to cede specific risks that exceed their capacity.
   • Useful for unique or high-risk policies that may not fit standard treaty agreements.

9. Treaty Reinsurance

   • A pre-negotiated agreement covering a portfolio of risks rather than individual policies.
   • Streamlines the reinsurance process and provides automatic coverage for ceded risks.
   • Enhances predictability in risk management and financial planning for insurers.

10. Finite Risk Reinsurance

• A structured reinsurance arrangement that limits the reinsurer's exposure to a specific amount.
• Often includes features like profit-sharing and loss corridors to align interests.
• Useful for managing long-term risks and smoothing financial results over time.