Which statement best describes the agreement structure in treaty reinsurance?

The statement that the agreement structure in treaty reinsurance is fixed for a specified period and covers all policies under it accurately reflects how this type of reinsurance functions. Treaty reinsurance establishes a long-term contractual agreement between the ceding insurer and the reinsurer, typically spanning a year or more. This structure obligates the reinsurer to accept all risks and policies that fall within the parameters established in the treaty during that specified period.

This consistency allows the ceding insurer to operate with more predictability, as they know the reinsurer will provide coverage for all applicable policies without needing to negotiate separate terms for each individual policy. This contrasts with facultative reinsurance, where coverage is negotiated on a case-by-case basis for specific risks.

Understanding this fixed nature is crucial, as it ensures that both the reinsurer and the ceding insurer have a clear understanding of their obligations, which is particularly important in managing risk exposure and capital requirements in the insurance market.