Reviewed by Sep 30, 2020| Updated on
It is a reinsurance business formed via a reinsurance company's assistance. Reinsurance assisted placements in having the reinsurance company offering matching funds to the actual sale, which might be made either by an agent or a broker. In this case, the reinsurer works with the insurer, who may or may not cede his policies. In every case, the insurer operates in a reverse flow system in partnership with the reinsurer.
Accordingly, the insurance company is compensated by ceding its policies to the reinsurer. The reinsurer, in turn, receives as the underwriter an allotment of the premiums the insurer collects. That arrangement flows to the reinsurer from the insurer. The reinsurer, then, relies on the insurers' ceded premiums for much of its revenue.
This arrangement encourages reinsurers to have their partnering insurers drum up a new business. Some reinsurers will, therefore, form relationships with brokers and agents operating in one sector and steer them all towards their partnering insurer.
In reality, reinsurers themselves act as a form of broker for all the parties that have sold insurance policies in reinsurance supported placement. This is different from the typical business flow, where the insurer subscribes to policies and then turns to a reinsurer.
It is important to note that an insurer is not always required by reinsurance assisted placement to cede the policies formed. The choice to cede policies or not will depend on the type of reinsurance arrangement.
For example, reinsurance under the Treaties requires the insurer to automatically cede its policies. However, in optional arrangements where the insurer is not required to cede policies derived from these placements, the reinsurer can generally feel assured of receiving benefits as the insurer is pleased to receive the new business influx.