Treaty Agreement Insurance
Sometimes insurance companies want to offer insurance in legal systems where they are not licensed or in which they feel that the local rules are too heavy: for example, an insurer may offer an insurance program to a multinational to cover risks in kind and liability in many countries of the world. In such cases, the insurance company may find a licensed local insurance company in the country concerned, induce the local insurer to pay an insurance policy covering the risks in that country and enter into a reinsurance contract with the local insurer in order to transfer the risks to itself. In the event of a loss, the policyholder would claim rights against the local insurer under the local insurance policy, the local insurer would pay the debt and demand a refund under the reinsurance contract. Such an arrangement is called "fronting." The frontage is sometimes used even when an insurance buyer requires a certain financial rating from his insurers and the potential insurer does not meet this requirement: the potential insurer may eventually convince another insurer with the required solvency to grant coverage to the purchaser of insurance and to take out a reinsurance with respect to the risk. An insurer that acts as a "front insurer" receives a wholesale fee for this benefit to cover the reinsurer`s management and possible failure. The front insurer takes a risk in such transactions because it is required to pay its insurance fees even if the reinsurer becomes insolvent and does not reimburse the fees. Reinsurance companies offer insurance to other insurers and thus protect against the circumstances if the traditional insurer does not have enough money to pay all claims against its written policies. Reinsurance contracts are between a reinsurer or receptive company and the reinsured or receptive company. A standard insurer can continue to spread its own risk of loss through the conclusion of a reinsurance contract.
In most contractual agreements, once the terms of the contract, including the categories of risk covered, have been defined, all the policies that are covered by these conditions - in many cases, both new and existing enterprises - are generally covered, usually automatically, until the agreement is denounced. A reinsurance contract under which the receptive company has the option to divest and the reinsurer has the option of accepting or refusing certain risks. The contract describes how individual optional reinsurance should be handled.