Florida Surplus Lines Insurance Practice Exam

Treaty reinsurance is characterized by its ability to encompass a range of policies under a single agreement. This type of reinsurance is designed to provide coverage for a defined block of business, allowing the ceding insurer to share a portion of its risk across multiple policies without having to negotiate individual contracts for each one.

By having a treaty in place, the ceding insurer can automatically cede specific types of risks that fall within the parameters of the treaty, providing a streamlined and efficient way to manage risk. This setup contrasts with facultative reinsurance, which pertains to individual policies and requires separate negotiations for each policy.

The broader coverage provided by treaty reinsurance means that it can be beneficial for insurers looking to stabilize their loss exposure and effectively manage large volumes of policies under consistent terms. This aspect of treaty reinsurance makes it a vital tool in the insurance industry for managing risk.