Automatic Reinsurance

What Does Automatic Reinsurance Mean?

Automatic reinsurance, also known as obligatory reinsurance or an automatic treaty, refers to the arrangement between two companies—the ceding company and the reinsurer—where the reinsurer agrees to assume a set of risks without requiring prior notice in the future.

Insuranceopedia Explains Automatic Reinsurance

Reinsurance arrangements generally fall into two categories: facultative reinsurance and treaty reinsurance. In facultative reinsurance, the reinsurer selects specific risks or policies to assume. In treaty reinsurance, the arrangement covers more than just specific risks or policies, potentially including all risks from a substantial number of the ceding company’s policyholders. Premiums and funding for these risks are shared between the ceding company and the reinsurer.

In automatic reinsurance, new policies containing the risks included in the treaty are transferred to the reinsurer immediately, even without notifying the reinsurer.