Automatic Reinsurance

What Does Automatic Reinsurance Mean?

Automatic reinsurance, also called obligatory reinsurance or automatic treaty, refers to the arrangement between two companies, the ceding company and the insurer, where the latter agrees to take on the transfer of a set of risks even without being given notice in the future.

Insuranceopedia Explains Automatic Reinsurance

Reinsurance arrangements generally fall into two categories: facultative reinsurance and treaty. In a facultative insurance, the reinsurer chooses a specific risk or a specific policy. In a treaty, the reinsurance takes more than a specific risk or a specific policy and might even take on all risks of a sizeable number of a ceding company's policyholders. Premiums and funding for risks are then shared by the ceding company and the reinsurer.

In an automatic reinsurance, a new policy containing the risks that are included in the treaty are transferred to the reinsurer right away, even without notifying the reinsurer.