Casualty Actuarial Society (CAS) Practice Exam

Treaty reinsurance is a type of reinsurance agreement where an agreement is made between the primary insurer and the reinsurer to cover a portfolio of risks without the need for individual negotiation for each risk. This arrangement means that once the treaty is in place, the primary insurer can cede risks to the reinsurer automatically, without needing to seek approval for each specific risk covered under the treaty. This significantly streamlines the process for primary insurers compared to facultative reinsurance, where each risk must be evaluated and negotiated separately, which can be time-consuming and complex.

In contrast, facultative reinsurance typically involves case-by-case discussions between the primary insurer and the reinsurer, which can slow down the transaction process. Since treaty reinsurance allows for quicker and more efficient risk transfer, it is especially advantageous for the primary insurer in managing their portfolio of risks effectively.