Individual risk offered by an insurer for acceptance or rejection by a reinsurer. Both parties are free to act in their own best interests regardless of any prior contractual arrangements. With proportional facultative reinsurance, the reinsurer assumes a proportional share of premiums and losses. On a nonproportional basis, the reinsurer is liable only for losses which exceed the insurer's retention level; premiums vary with loss expectation.
04 September 2010
The facts that the facultative reinsurance carried with it a general presumption of "back-to-back" coverage, the inclusion of the Full Reinsurance Clause, "as original" wording, and a follow settlements clause, did override the affect of the plain language of the reinsuring provision, interpreted in accordance with the law of the contract.
The Reinsurance Treaty of June 18, 1887 was an attempt by German Chancellor Otto von Bismarck to continue to ally with Russia after the League of the Three Emperors had broken down in the aftermath of the 1885 Serbo-Bulgarian War.
Facing the competition between Russia and Austria–Hungary on the Balkans, Bismarck felt that this agreement was essential to prevent a Russian convergence toward France and to continue the diplomatic isolation of the French so ensuring German security against a threatening two-front war. He thereby hazarded the expansion of the Russian sphere of influence toward the Mediterranenan and diplomatic tensions with Vienna.
The secret treaty signed by Bismarck and the Russian Foreign Minister Nikolay Girs was split in two parts:
Germany and Russia both agreed to observe neutrality should the other be involved in a war with a third country. Neutrality would not apply should Germany attack France or Russia attack Austria–Hungary. In the most secret completion protocol Germany declared herself neutral in the event of a Russian intervention in the Bosphorus and the Dardanelles. As part of Bismarck's system of "periphere diversion" the treaty was highly dependent on his personal reputation. After the dismissal of Bismarck, his successor Leo von Caprivi felt unable to obtain success in keeping this policy, while the German Foreign Office under Friedrich von Holstein had already prepared a renunciation toward the Dual Alliance with Austria–Hungary.
When in 1890 Russia asked for a renewal of the treaty, Germany refused persistently. Kaiser Wilhelm II believed his own personal relationship with Tsar Alexander III would be sufficient to ensure further genial diplomatic ties and felt that maintaining a close bond with Russia would act to the detriment of his aims to attract Britain into the German sphere. Like the ongoing Austro-Russian conflict, the Anglo-Russian relations too were strained at this point due to the gaining influence of Russia in the Balkans and their aims to open up the Straits of the Dardanelles which would threaten British colonial interests in the Middle East. However, having become alarmed at its growing isolation, Saint Petersburg, as Bismarck had feared, entered into the Franco-Russian Alliance in 1892 thus bringing to an end the French isolation.
In 1896 the treaty was exposed by a German newspaper, the Hamburger Nachrichten, which caused an outcry in Germany and Austria-Hungary.
The failure of this treaty is seen as one of the factors contributing to World War I, due to Germany's increasing sense of diplomatic isolation.
04 September 2010
In other cases, a reinsurance treaty can be written as a proportional policy. Under this plan, the reinsurance company agrees to take a certain percent of the direct company’s risk on all policies or on a particular kind of policy. In return, the reinsurer receives that percent of the premiums paid for those policies, less the cost for obtaining the business. The writing costs include commissions paid to the agent and the overhead cost of creating the policy.
The agreement may also be written in such a way that the reinsurance company only steps in when risk exceeds a predetermined amount. Such an arraignment is called a non-proportional reinsurance treaty. The type of reinsurance treaty a company chooses to engage in is determined by the kind of policies that are being written, and the size and assets of the primary insurer.
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