The treaty is a key source of data in reinsurance. It is the formal contract that binds the ceding company with the reinsurer and lays out the terms of the agreement. Being able to read and understand the paper treaty is a key skill in reinsurance administration.
The paper treaty is often referenced to answer inquiries, resolve administrative system issues, and perform testing. However, treaties will often be extremely long and contain a lot of standard legal information that you will need to sort through, especially in the main body of the treaty. A reinsurance analyst needs the ability to zero in on exactly what they need as efficiently as possible.
On of my earliest experiences in reinsurance was reading and summarizing a few hundred paper treaties for a client, which allowed me to quickly gain solid knowledge on treaties. Below I’ve highlighted seven of the most essential parts of a treaty for a reinsurance analyst.
1) The First Page
Often quickly overlooked, the first page of a treaty can have a slew of important details. Here you should find the name of the companies the contract is between and the effective date. Sometimes you can also find whether the treaty is Yearly Renewable Term or Coinsurance and a treaty number for tracking purposes.
2) Plans / Business Covered
Sometimes vague and sometimes nitty, gritty detailed, the plans/business covered section tells us what business the treaty belongs to. This can vary from “all business between Date A and Date B” down to a specific list of plans, series, riders, effective dates, etc. As can be expected, the plans/business covered page is often one of the first Exhibits.
3) Retention & Binding Limits
One of the most important sections in reinsurance admin, retention and binding limits are found in the Exhibits, often together on the same page. These limits define the terms by which the reinsurer and the ceding company share in the death benefit amounts.
For almost any question regarding reinsurance administration, the retention and binding limits are often the first things to be checked.
Making sure that what is in the administrative system matches what is in the treaty is crucial to maintaining quality data.
4) Reinsurance Premiums
Also found in the Exhibits, the premiums page outlines the terms by which the ceding company pays the reinsurer for taking on its share of the risk on a coverage. The terms covered here define the pay percentages or allowances, premium rate schedules to reference, and Joint Life calculation methods where applicable.
5) Rate Schedules
You can’t calculate premiums without rate schedules. Rate schedules, which usually follow the premiums page in the paper treaty, provide the rates per every age, duration, and class used in calculating reinsurance premiums. If you’re doing any premium testing on your reinsurance data or testing against your administrative system, you will need these numbers.
Claims are a major aspect of reinsurance, as are the method by which they are settled. Generally, an entire Article is devoted to the claims terms. Anyone handling claims needs to know the terms around claim processing to ensure timely reporting and settlement. While the terms for providing proof documents and turnaround times are often standard across most companies, terms defining contestable claims and reinsurer participation in expenses, can vary significantly. Adhere well to the terms outlined to avoid issues down the road!
7) Amendments & Addendums
|Jennifer Agosta is Reinsurance Analyst at LOGiQ3
Amendments and addendums are documents outside of the Articles and Exhibits that make alterations to the original treaty. An amendment changes any aspect of the original treaty effective the date shown on the amendment. For example, the ceding company retention could be changed by an amendment at any time. An addendum is an addition to the treaty, such as adding new plans, effective the date shown on the addendum. PRO TIP: Amendments can significantly alter any part of the treaty and be added at any time, so make sure to first check if the details and dates of an amendment apply to your inquiry. Checking amendments first can save a lot of time poring over each page of the original treaty.
Those are my seven essential components to a treaty. They are my top spots I reference on a day-to-day basis that significantly help my work in reinsurance administration. Hopefully you can take away some useful tips on treaties. Share your own tips on efficiently referencing a treaty in the comments below.
What section of a treaty do you reference first?