What is treaty reinsurance?

Treaty reinsurance refers to a comprehensive reinsurance agreement that encompasses a class or portfolio of insurance exposures rather than being limited to individual loss exposures or specific risks. This arrangement is made between a primary insurer and a reinsurer, where the reinsurer agrees to accept a specified percentage of all risks that fall within the agreed class of business, streamlining the reinsurance process.

This type of agreement allows for a more efficient and consistent method of transferring risk, as it eliminates the need for the primary insurer to seek approval for each individual risk or exposure. By covering broader categories, treaty reinsurance facilitates rapid deployment of capacity and can significantly reduce administrative costs and complexities associated with managing multiple individual transactions.

In contrast, agreements that cover individual loss exposures selectively are typically categorized as facultative reinsurance, and the other options focus on different aspects of the reinsurance process, such as relationship management and pricing strategy, which are not defining characteristics of treaty reinsurance.