Reinsurance tutorials #28
What is a leader?
A leader – or lead reinsurer – is a reinsurer whose terms and conditions have been accepted by the ceding party in a reinsurance agreement. The leader negotiates the terms, conditions, and premium rates and is the first to sign.
The lead reinsurer generally carries a higher percentage of the risk for its own account – however, it is not required to take the largest share of the risk. The choice of a lead reinsurer might depend on their level of expertise and experience. A direct underwriter may prefer to choose a lead reinsurer with whom risks can be placed faster.
It is not uncommon for multiple reinsurers to participate in a single reinsurance contract. They may join forces in order to gain exposure to a particular risk without being responsible for compensating the insurer for the entire risk, or because the overall risk is too great for any one company. When this happens, a lead reinsurer – typically the most sophisticated and experienced one – acts on behalf of the other reinsurers (the following reinsurers) in negotiating the terms and conditions of the contract.
Lead reinsurers can also provide expertise to the ceding parties in a wide array of areas such as product development, claim process improvements and training.
If we look at the reinsurance placements worldwide, we may notice a trend by which the largest reinsurers take the lead in the contracts and other smaller reinsurers participate as followers. This can, nonetheless, vary from one country to the next, as well as from treaty to treaty. Additionally, there are countries where the local reinsurers take lead positions in most contracts, and where other global or international reinsurers are followers. In Turkey, as an example, there is a local reinsurer who takes the lead in most reinsurance contracts, negotiates terms and conditions with the insurance companies and other international players, who are mostly followers in those treaties.
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