In the normal course of business, reinsurers typically assist insurance companies (hereinafter referred to as “Cedents”) in expanding their underwriting capacity through the mechanism of reinsurance. On occasions, reinsurers will assume a significant portion of a Cedent’s risk, by covering 95% or more of the Cedent’s policy limit either on a quota share or excess of loss basis. This is especially relevant when Cedents are entering a new line of business and do not wish to expose a great deal of their own capital. When an insurance company decides to cede most of its risk to a reinsurer, it often expects the reinsurer to provide both the expertise and infrastructure through which the Cedent can offer underwriting services and claims protection to its insureds. Indeed, it is only reasonable for the reinsurer to exercise adequate control over underwriting decisions and claims support where it has assumed most of the risk. In certain developing markets such as China, India and Latin America, a Cedent may rely on reinsurers to provide both expertise and infrastructure, regardless of the amount of reinsurance being placed. This may be particularly true in instances where the Cedent offers global protection to it insureds. Notwithstanding the amount of capacity a reinsurer provides, ultimately, the policies issued will be in the Cedent’s name and it is the Cedent who is responsible to the insured for all obligations under those policies. However, both the Cedent and the reinsurer must be cognizant of all of the consequences of an arrangement whereby a reinsurer provides the Cedent with an infrastructure that includes underwriting and claims support services. It is the intent of this article to examine such considerations.
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