Definition of Obligatory Reinsurance
Obligatory Reinsurance is a reinsurance agreement in which the ceding insurance provider confirms to send a reinsurer all recommendations which fit within the rules of the reinsurance agreement. An essential reinsurance agreement also called an automated agreement requires the reinsurer to agree to the following tips.
Brief Explanation of Obligatory Reinsurance
Insurers looking to move the hazards created by their underwriting activities can enter into a reinsurance agreement with a reinsurer. There are two primary types of reinsurance planning: facultative and contract. In a facultative reinsurance contract, the reinsurer is able to decide which of the ceding insurer’s risks it wants to take on, as in a legal contract reinsurance contract the reinsurer is required to agree to all risks provided that they fall within the conditions of the contract. Obligatory reinsurance is a sort of contract reinsurance in which some insurance company is needed to code and a reinsurer needed to agree to all risks that meet a set of pre-specified conditions. This allows the insurance provider and reinsurer to build up a long-term relationship, as the insurance supplier does not have to locate a new reinsurer for each new risk. Each risk is instantly approved under the conditions of the contract, even if the insurance provider has yet to inform the reinsurer. Because essential reinsurance features automated approval, both the insurance provider and reinsurer need to be certain that the conditions of the contract include precise information of the kind of risks that the contract includes.