2. Reinsurance Business2. Reinsurance Business

2. Reinsurance Business

The classes of business for companies that are specialist reinsurers are as follows:

(I). Facultative

(II). Proportional

(III). Excess of loss.

(I). Facultative Reinsurance.

The reinsurance of individual risks by offer and acceptance wherein the reinsurer has the “faculty” (option) to accept or reject each offer by the ceding company.

(II). Proportional Reinsurance.

A proportional treaty is an agreement between an insurer and a reinsurer in which the reinsurer shares an identical proportion of the premiums and losses of the ceding company.

(III). Excess of Loss Reinsurance.

Reinsurance which, subject to a specified limit, indemnifies the ceding company against the loss in excess of a specified retention. This type of reinsurance can involve:

• any one risk reinsurance;
• any one event reinsurance;
• catastrophe reinsurance;
• aggregate excess of loss reinsurance; and
• stop loss reinsurance.

Reinsurance non-split

This line item classification disclosed under Reinsurance class of business is to be used where it is not possible for the insurer to separately slit out all the classes of reinsurance businesses. However as required by GGN 110.3 Insurance Risk Capital Charge, where an insurer writes inwards reinsurance business and is unable to split this business into the classes and types listed in Table 2 of that guidance note, they are to use the highest casualty factors on their outstanding claims liabilities.

Where an insurer writes inwards reinsurance which spans multiple classes and the insurer cannot readily split the contract between classes, APRA suggests that the contract should be allocated using one of the following methods:

(a) allocate the contract to the category which represents the greatest exposure; or

(b) allocate the contract to the category representing the greatest premium income.

An insurer that writes inwards reinsurance is free to choose which of the above methods it uses, or may use another appropriate method, provided the same method is used for all contracts and all subsequent periods.