Reinsurance intermediaries are brokers who arrange reinsurance cessions and retrocessions between insurance and reinsurance companies. Reinsurance intermediaries solicit, negotiate, and place treaty and facultative reinsurance agreements.
There are many benefits for an insurance company to purchase reinsurance coverage. Some of the reasons include bringing stability to the financial results, increased capacity, protection for catastrophic events, potential tax advantages, surplus relief, and access to the reinsurer's expertise. Some insurance companies also use reinsurance to exit a business segment or to transfer existing liabilities off their balance sheet.
Reinsurance intermediaries are responsible for informing insurance companies of all types of reinsurance coverage available, starting with treaty and facultative reinsurance. Treaty reinsurance is the most common form of reinsurance and is a contract which covers all risks which fall within the scope of the contract. Facultative reinsurance is purchased on a risk by risk basis and is generally used to cover unusually large risks which are not appropriately covered by treaty reinsurance.
Treaty reinsurance is available under a proportional and non-proportional basis. Proportional reinsurance includes quota share and surplus reinsurance. Non-proportional reinsurance is also called excess of loss reinsurance. Excess of loss reinsurance can be arranged on a per risk, per occurrence, or aggregate basis.
Based on the complexity of reinsurance agreements, the large amounts of ceded business, and the high level of reinsurance disputes, it is important that reinsurance intermediaries be covered by E&O insurance.