What is the main feature of treaty reinsurance?

What is the main feature of treaty reinsurance?

• A. Ad-hoc agreements for specific claims
• B. It involves a standing agreement with a specific reinsurer
• C. It requires individual negotiation for each claim
• D. It does not cover liability claims

Answer: (B)

The main feature of treaty reinsurance is that it involves a standing agreement with a specific reinsurer. This type of reinsurance establishes a long-term contractual relationship between the insurer and the reinsurer, allowing the insurer to automatically cede a predetermined portion of its risk under certain conditions without needing to negotiate each transaction individually. This streamlining is beneficial for both parties, as it provides the primary insurer with greater capacity and stability in risk management while ensuring that the reinsurer has a predictable flow of business. In treaty reinsurance, the terms and rates are generally agreed upon in advance, which facilitates efficient handling of the covered risks. This is distinct from facultative reinsurance, where individual agreements must be negotiated for specific risks or policies, emphasizing that treaty reinsurance operates under a broader, more continuous framework.

The main feature of treaty reinsurance is that it involves a standing agreement with a specific reinsurer. This type of reinsurance establishes a long-term contractual relationship between the insurer and the reinsurer, allowing the insurer to automatically cede a predetermined portion of its risk under certain conditions without needing to negotiate each transaction individually. This streamlining is beneficial for both parties, as it provides the primary insurer with greater capacity and stability in risk management while ensuring that the reinsurer has a predictable flow of business.

In treaty reinsurance, the terms and rates are generally agreed upon in advance, which facilitates efficient handling of the covered risks. This is distinct from facultative reinsurance, where individual agreements must be negotiated for specific risks or policies, emphasizing that treaty reinsurance operates under a broader, more continuous framework.