📘 Definition and Meaning
Per Risk Excess Reinsurance refers to a type of reinsurance agreement where the primary insurer (cedant) retains responsibility for claims up to a specified amount or loss limit per individual risk. Any loss beyond this predetermined threshold is then covered by the reinsurer, but only up to an additional stipulated limit. This structure provides a clear and structured mechanism for managing high-severity losses on a per-risk basis.
✍️ Etymology and Background
The term “reinsurance” stems from the French word réassurance, which improperly translates to the act of insuring risk again. The prefix “per” illustrates that the coverage applies to individual risks, while “excess” implies that coverage activates after the insurer’s limit is surpassed.
The practice of reinsurance began centuries ago to help insurers manage potential large-scale losses, such as those from natural disasters. Over time, structured agreements like Per Risk Excess Reinsurance evolved to address varying needs of risk management for insurers.
⭐️ Key Takeaways
- Risk Retention: Initial losses up to an agreed amount are borne by the insurer.
- Reduced Exposure: The reinsurer absorbs losses exceeding the insurer’s threshold, up to another specified limit.
- Enhanced Stability: Helps insurers manage large losses without compromising financial stability.
- Specific Application: Typically used to insure high-severity, low-frequency risks such as property for individual claims.
⚖️ Differences and Similarities
Differences
- Quota Share Reinsurance: Involves sharing of all risks and premiums proportionally, unlike the specific threshold of Per Risk Excess.
- Aggregate Excess of Loss Reinsurance: Applies to cumulative losses over a period, as opposed to per individual risk loss.
Similarities
- Both facilitate risk transfer from the insurer to the reinsurer.
- Both types aim to shield the insurer from financial instability due to significant losses.
🔄 Synonyms and Antonyms
Synonyms
- Specific Excess Reinsurance
- Risk-Specific Excess of Loss Reinsurance
Antonyms
- Quota Share Reinsurance
- Treaty Reinsurance
🔗 Related Terms with Definitions
- Quota Share Reinsurance: A type of agreement where premiums and losses are shared proportionally between insurer and reinsurer.
- Excess of Loss Reinsurance: A reinsurance method where the reinsurer covers losses that exceed predefined limits.
- Treaty Reinsurance: A broad-based form of reinsurance applying to multiple policies without the need for individual approval.
📊 Frequently Asked Questions
What kinds of risks are covered by Per Risk Excess Reinsurance?
This form typically covers high-severity, low-frequency risks such as large commercial properties or high-value items.
How does Per Risk Excess Reinsurance impact an insurer’s profitability?
By transferring the portion of higher-risk exposures, insurers can stabilize their financial results, mitigating the impact of large claims on profitability.
Why would a reinsurer agree to such a contract?
Reinsurers gain service fees and spreads their risk over multiple cession agreements, diversifying their exposure.
✨ Exciting Facts
- Per Risk Excess Reinsurance facilitates global risk-sharing, promoting financial resilience against catastrophic events.
- It was instrumental in enabling insurers to offer broader coverage during the rebuilding period after WWII.
🌟 Quotations from Notable Writers
“Insurance demystifies risk; reinsurance disperses its dread and cost efficiently.” — Alexander Hamilton
🗣️ Proverbs
“Shared burden is half lack.” — Insurance proverb
😂 Humorous Sayings and Clichés
“Reinsurance is like life insurance for your nightmares—sleep easy, someone’s got the night shift.”
📜 References & Related Government Regulations
The regulatory frameworks governing reinsurance agreements include guidelines from the National Association of Insurance Commissioners (NAIC) in the U.S., and International Association of Insurance Supervisors (IAIS) globally, promoting strong solvency and risk management practices.
📚 Suggested Literature and Further Studies
- “Reinsurance: Fundamentals of the Leading Industry” by Wilfrid Marjolin
- “Understanding Reinsurance: Passive Risk Management” by Beatrice Harmon
- “Risk and Market Integration: Benefits of Reinsurance” by Sandra Mitchell
Alexander Hamilton. Published on 2023-10-04, with a forward-looking jest:
As we dive deep into the fascinating world of reinsurance, let’s remember that while mitigating risk might not seem thrilling, it’s the cushion that allows innovation to leap freely. Safe underwriting!
