26 April 2022 3 min read

📋 Negociations | Structuring a reinsurance treaty

Reinsurance Tutorials #5 - Season 2


Hi everyone!


iIn the last videos we’ve been discussing about reinsurance treaties, the importance of their wordings and their pricing but we haven’t mentioned one very important point: the negociation part of it!


Ever wonder how a reinsurance treaty is negociated? Let’s find out together! ⏬


As you might have all experienced, negotiations are a big part of our lives! Just think about the challenges when raising children for instance. So, it’s not surprising that reinsurance is no exception to this rule!

Indeed, underwriting a reinsurance treaty is a long process that involves many players, from the reinsurer’s teams and from its partners’

As a reinsurer, you have to really know the insurer—also called the “ceding company” or “cedent”—and understand its stakes. This is why we have many meetings throughout the year with the cedent’s teams, such as the analytics team or the head of reinsurance for example. The goal is to understand and evaluate the cedent’s portfolio as accurately as possible.
Brokers are very often involved in the process as well. They help design the reinsurance treaties and enable insurance companies to establish relations with reinsurers. Brokers are intermediaries with whom we are in close contact all year long!

In many cases, we put together a renewal package using data and reports which is presented to a panel of reinsurers that studies the package. The objective, as we have seen in previous videos, is to come to an agreement regarding both the wording and the premium rates of the treaty for the year to come. And, as you can imagine, it is not always easy to match our own needs in terms of guidelines and profitability to the other reinsurers’. However, as partners, we all strive to find solutions that suit everyone’s needs.

At this stage, the underwriter who is in contact with the insurer or the brokers, initiates discussions with the actuaries and legal experts within his or her company to evaluate the risks covered under the treaty. Depending on the treaties involved, if the exposure goes beyond the scope, for example, the chief underwriting officer can also be approached. As you see, negotiations have to be considered internally as well!

The discussions then continue to go back and forth between the reinsurers and the insurers or brokers. And the previous renewal season was a perfect example of this kind of numerous and unceasing exchanges. Indeed, the exclusion clause for communicable diseases has fueled many debates over the past few months!

If all goes well, the insurer agrees to the final terms and conditions specified by the lead reinsurer. The lead reinsurer is the reinsurance company that provides the most support to the insurer either by taking the largest share of the treaty or by offering the insurer high-quality assistance. It goes without saying that, as a consequence, the lead reinsurer continues to have the highest leverage in the negotiations.

However, when choosing the leader’s terms and conditions, the cedent will keep in mind what the other reinsurers tried to negotiate. As a matter of fact, the relationship is a partnership and the cedent would not want to have its program not placed in the end. So, as mentioned earlier, the point is to find an agreement suitable for each party in the treaty. If a compromise cannot be found, the discussions must remain cordial and free of any friction that would jeopardize any potential future business agreements.

Lastly, in the light of the terms and conditions, all the other reinsurers must decide if they agree to follow the lead reinsurer and hence become the “following reinsurers”


Does the treaty meet their underwriting guidelines? Sometimes you also have to take into consideration the relationship with the cedant as a whole, meaning for instance, whether there are other programs related to this treaty. The most usual example for is a non-profitable line of business that would have some difficulties being placed on a stand-alone basis and does not meet many guidelines. However, with this other line of business which is often considered profitable, a solution can sometimes be easier to find.


As the old proverb goes, “A friend in need is a friend indeed”! Supporting a partner going through difficult times may be rewarded later with long-lasting confidence.

If the reinsurer is interested in the treaty, it accepts a written share, possibly with subjectivities. For example: “Given those final terms and conditions, I accept to take up to 20% of this treaty, but I do not want to have less than 10% because I need to meet a minimum premium” or “I accept to support the company on this program with a 10% share provided this specific clause is included in the wording, even though I know the lead reinsurer has agreed on something else”. In the end, the insurer takes into account these requests, makes its choices and distributes the signed shares to the reinsurers, with or without differentiated conditions. Saying yes can be easy, but saying no in a proper way might be a difficult but sometimes necessary challenge for the underwriter.

As a reinsurer or an insurer, you don’t always get what you expected in terms of shares or conditions. That’s why communicating and negotiating all year long with all your partners is essential to understanding each other’s needs and anticipating the action to be taken the following renewal season!

So far, we have tried to present the underwriting process in general. From here on, we will go deeper into some specific lines of business. Let’s start with motor.


Hope you enjoyed this video and see you soon!


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