§14.31 - Reinsurance and Coinsurance

• Jurisdiction: Washington

§14.31 REINSURANCE AND COINSURANCE

Reinsurance and coinsurance permit the spreading of large liability policies among several title insurers. Three factors nationally that result in liability under a particular title insurance policy being spread among more than one insurer are (1) risk limits imposed by law, (2) risk limits imposed by insureds, and (3) voluntary risk limits self-imposed by insurers.

There are no Washington statutes limiting risk retention or reinsurance assumption for title insurers.

Some title insurance customers, such as life insurance companies and other institutional lenders, will establish maximum single-risk retention limits for title insurance companies. These limits typically are based on evaluations of the companies' annual reports and annual Form 9 statements prepared by title insurance companies pursuant to standards established by the National Association of Insurance Commissioners.

Every insurer has self-imposed levels of insurance risk it can prudently assume. An insurer will retain its maximum dollar limit and invite reinsurance for the excess. Under certain conditions, an insurer has established procedures to increase the amount retained on a single risk. The established amounts vary widely and are subject to change.

Reinsurers will be selected by the primary insurer unless the proposed insured requests reinsurance by specific companies.

The same limits will generally apply to retained insurance risks and to reinsurance assumptions or coinsurance. In certain transactions, insurers or insureds may increase or decrease the current limits they have imposed. Generally, an increase of the insurer's self-imposed limit requires approval by the insurer's board of directors.

(1) Reinsurance

Reinsurance is a contract under which one insurer (reinsurer), for a consideration, agrees to indemnify another insurer (ceder) in whole or in part against loss or liability that the latter may incur under a separate contract (policy) as the insurer of a third party.

In some instances, small insurance companies will enter into a reinsurance treaty that provides for the ceding insurer automatically to reinsure a certain proportion or category of all its risks. A treaty is a contract for insurance.

Most reinsurance cessions, however, are the subject of individual contracts of reinsurance for a particular risk. The tender, or invitation, to reinsure and its acceptance is customarily implemented through the currently used ALTA Facultative Reinsurance Agreement dated September 24, 1994 (see Form 14-32 on the CD accompanying this deskbook). The reinsurer's liability begins as soon as the policy becomes effective, regardless whether notice of its issuance is given or payment of the reinsurance premium is made. A copy of the executed agreement is provided with the policy when requested by the insured.

The ceding company must disclose to the reinsurer the essentials of the risk to be covered. Even though a copy of the policy is provided with the reinsurance contract, the policy itself does not always indicate...