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sSQL = sSQL & "ON Users.User_ID = Articles.Article_User_ID WHERE Article_Status = 1 AND Article_Level = 0 "
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New business strain
New business strain is the affect of claims during the early years when the fund has not built up and especially during the first two years of the life policy where acquisition and setting up costs are highest. New life offices are most subject to this strain and their reinsurance arrangements will be vital to their business development plans over the first few years. As the life office gets more established their reinsurance needs will reduce.
Types of reinsurance
There are two methods of placing reinsurance. These are facultative and treaty.
Facultative reinsurance
Under this method the reinsurance contract is arranged on a risk by risk basis much in the same way as the original life insurance contract. The life office will present all the material information to the reinsurance office and receive a quote which it can accept or reject. For large risks the life office may have to go to several reinsurance offices in order to obtain the level of reinsurance it requires.
This method is time consuming, required separate paper work per risk and creates more documentation. This lead to the idea of more formal arrangements.
Treaties
Under a treaty arrangement there is an agreement (treaty) between the life office and the reinsurer under which the life office offers the reinsurer all of its business within a certain description to the reinsurer who must accept that business under the treaty. The amount ceded to the reinsurer is pre set and would normally be £x amount above the life offices retention limit.
A variation of this is the facultative obligatory treaty where the life office can reinsure at its option with the reinsurer and within set limits the reinsurer is obliged to accept the risk.
Treaties can be arranged to cover all the life office’s business or they can be arranged to cover specific classes of business only. The treaty policy acts as the reinsurance contract and separate policies are not issued for each risk. The life office will provide the reinsurer with regular statistics so that the reinsurer is fully able to monitor the risk he is running. Accounting for premiums and claims will probably be done on a quarterly bordereau basis. This level of documentation and accounting saves substantial administration costs.
Methods of reinsurance
Reinsurance can be provided by two different bases. Original terms of risk and risk premium insurance.