Re insurance BasicsGlossary of Common Reinsurance TermsWhat Types of Reinsurance Are Available?What is the difference between treaty and facultative reinsurance?What is the difference between a proportional agreement and a non-proportional agreement?How does excess of loss reinsurance work?Why buy reinsurance?How is reinsurance used to increase capacity?How is reinsurance used to and how is it used to finance growth?What is surplus relief protect against catastrophes?Reinsurance BasicsOur Unique Approach 2Complete Reinsurance Solutions 2Introduction 2How Does Reinsurance Work? 3What Types of Reinsurance are available? 4What is the difference between treaty and facultative reinsurance? What is the difference between a proportional agreement and a non-proportional agreement? How does excess of loss reinsurance work? 6What Are the Benefits of Reinsurance? 8Why buy reinsurance? How is reinsurance used to increase capacity? How is reinsurance used to enhance stability? How is reinsurance used to protect against catastrophes? 9What is surplus relief and how is it used to finance growth? How is reinsurance used to gain access to underwriting expertise? 10How is reinsurance used to withdraw from a territory or line of business? How is Reinsurance Underwritten? 11What are the factors a reinsurance underwriter must consider? In the event of a covered loss, who pays whom? 12What kinds of risk can be reinsured?Glossary of Common Reinsurance Terms 12TABLE OF CONTENTS2CNA Re offers a total reinsurancesolutions, including treaty,facultative, alternative risk andfinancial reinsurance.TreatyWorldwide we offer multi-line treatycapabilities and expertise in writing:Working layer propertyWorking layer casualtyProperty catastropheWorkers’ compensationProfessional liabilitySpecialty, Excess and Surplus linesFacultativeFacultative capabilities include bothproperty and casualty lines globally.Areas of focus include commerciallines, personal lines, inland marine,boiler and machinery, and all packagepolicies. Other classes consideredinclude PML and capacity layers.Up to $10 million capacity is availablefor casualty risks. Areas of expertiseinclude automatic and individualrisk products such as general liability,automobile liability, umbrella liability,workers’ compensation, liquor liability,wrap ups, railroad protectives, OCPsand specific event covers.Alternative riskProperty and casualty coverage is available for group self-insuredassociations, captives, risk retentiongroups, governmental pools andindividual risks, using self-insured,single parent captives or largedeductive programmes.Global financial reinsuranceGlobal financial reinsurance writes business around the world.We write individual product lineand whole account stop losscontracts, multi-year catastropheloss spreaders on both an individualloss and aggregate basis and cappedloss portfolio transfer.OUR UNIQUE APPROACH Complete Reinsurance SolutionsUnderstanding your business – This is a critical first step in buildingthe foundation for our relationship.Innovation – Our philosophy of providing out-of-the box solutions positions CNA Re to offer the types of aggressive reinsurance solutions worldwide that keep our clients competitive.Responsiveness – In today’s world, responsiveness is critical to success.CNA Re strives to provide responsiveness in providing information, answering questions and offering solutions.Visit our website at http://www.cnare.com3IntroductionWhen a primary insurer meets itsreinsurance needs by entering intomultiple contracts with more thanone reinsurer, the resulting packageof agreements is known as areinsurance programme.The advantages of a programmerather than a single reinsurancecontract with a single reinsurancecompany are flexibility and controlfor the ceding company. The cedingcompany retains maximumflexibility to adapt the programmeas its needs change over time.Naturally, the programme is alsodesigned to be as cost effective aspossible for the ceding company.How Does Reinsurance Work?What is reinsurance?Reinsurance is a contract orprogramme between a primaryinsurer and one or severalreinsurers. Through a reinsurancecontract, the company that buysreinsurance spreads its risk byceding (transferring) a portionof its liability to one or morereinsurers. Reinsurers can also buyreinsurance to spread the risk evenfurther. It has been referred to as insurance of insurance companies.If that were the end of it, reinsurancewould be simple but, of course, itisn’t. A ceding company (the buyer)usually enters into a reinsuranceagreement for a very specific reason.That reason, the nature of the riskbeing insured, the business strategiesof all the companies involved, andother factors combine to create amyriad of possible combinations.Because there are so many differentproducts and so many differentways to combine them into aprogramme, reinsurance is an art asmuch as a science. There are formulasand calculations, industry standards,and other guidelines that can befollowed, but successful reinsuranceplanning, placement and manage-ment is — like any insurancetransaction — also about trust, longterm relationships, and creativeproblem-solving.The purpose of this guide is toprovide a quick reference to thefundamental strategies and conceptsthat drive this industry.4Regardless of whether the contractform is treaty or facultative, thesame loss-sharing methods areavailable. The contract can be eitherproportional or non-proportional.In a proportional agreement forreinsurance, the reinsurer agrees topay for losses in the same proportionas the share of premium it receives.For example, if the primary insurercedes 60 percent of its liability to areinsurer, it pays an amount equal to60 percent of the original premiumfor the privilege. Proportional reinsur-ance is also called pro-rata reinsurance.Proportional reinsurance can bewritten on either a quota share or asurplus share basis. In a quota shareThe two basic categories ofreinsurance are treaty and facultative.The difference between them is thata treaty contract covers multiplerisks of a certain type while a facul-tative contract is for a single risk.A typical treaty contract will coveran entire category of risk or line ofbusiness, perhaps up to a certainlimit or for a certain period of time.As long as a new risk that isaccepted by the ceding companymeets all the specifications for itscategory, as defined by thereinsurance contract, acceptanceof that risk by the reinsurer