A coinsurance plan of reinsurance is a proportional treaty where the ceding insurer retains a portion of risk and transfers a share to a reinsurer.
Why reinsurers participate
The purpose is stability: spreading catastrophic or clustered risk while keeping the original policy in force with the policyholder.
Claims and contract mechanics
- The cedent and reinsurer agree on share percentages.
- Premium and liability shares are ceded according to treaty terms.
- Claims are settled through treaty procedures when the underlying insured loss is accepted.
Underwriting impact
Reinsurance structures allow growth while protecting capital adequacy. Treaty participation is also a strategic tool for managing large single-event accumulations.
Scenario
A life insurer writes a large block of high-value policies and enters a 40% coinsurance participation treaty. On a claim event, 40% of the death benefit responsibility follows the treaty terms to the reinsurer, stabilizing the insurer’s net payout.