methods of reinsurance

?important Methods of Reinsurance

1.?Shopping or 'Street' Reinsurance:

Under this method, there is no standing agreement regarding reinsuring of risk of one company by the other. Each policy is treated on an individual basis. The reinsurer is sought only when the need of reinsurance on a policy arises.

The reinsurer scrutinizes each case on its merits and may accept the risk on any terms and conditions or may decline it. Since the ceding company is not certain about the availability of reinsurance and a term, it will exercise a greater care in selecting the risk.
2.?Facultative Reinsurance:

The essential feature of this method is that each individual risk is submitted by the ceding office to the reinsurer who can accept or decline whatever sum they consider appropriate subject to the amount of their acceptance being approved by the ceding office. The reinsurer is offered the particulars of original contract.

Facultative reinsurance policies:

As mentioned earlier, a reinsurance policy is essentially different from a reinsurance contract. A reinsurance policy is in respect of risk which is already written and the reinsurance is required for limits in excess of net retention limits and other reinsurance capacities.

It is not obligatory for the reinsured to effect facultative reinsurances and the reinsurers have option open to accept or reject a risk.
Facultative reinsurances are of two types, viz., rata or Contributing Facultative Reinsurance and Facultative Excess of Loss Reinsurance. Reinsurance policies are contracts for risks already written and not for future risks to be written.