17

Retrocession

by Robert F. Salm *

Characteristics

   The glossary in the authoritative book, Reinsurance, defines retrocession as "the transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed." The same glossary identifies the retrocedent as "the ceding reinsurer in a retrocession, where the assuming reinsurer is known as the retrocessionaire."1 These terms are standard within the industry, with one perplexing exception from London. The distinguished Lloyd's Underwriter, Robert Kiln, in the glossary of his book, Reinsurance in Practice, indicates retrocession means "contributing reinsurance of reinsurance," but he also lists the word "retrosurance" as meaning "reinsurance of reinsurance."2 A review of the admittedly meager literature on the subject, however, fails to reveal any use of the term, "retrosurance." Therefore, this chapter will employ the more conventional terminology.3

     It is unfortunate that these trade terms do not change when the subject matter becomes reinsurance of retrocessions, i.e., transactions under which a retrocessionaire cedes assumed retrocession business to yet another retrocessionaire. Perhaps our industry's nomenclature could profit by adopting Kiln's word for that particular transaction. It may be of some comfort to the surfeited reader to learn at this point there will be no need to cope with a separate discussion of such "retrosurance" contracts; they do not differ, in purpose or construction, from the retrocession agreements examined in this chapter.


* Retired Assistant Vice President of Continental Casualty Company in Chicago and specialist in reinsurance contract documentation. Six months after this chapter was written, Mr. Salm died during heart surgery in Chicago on November 9, 1987. An autobiography appears at the end of the chapter.

1 Robert W. Strain, Ed. (Wingdale, New York: Strain Publishing, Inc., fourth Printing, 1987), p. 662.

2 Robert Kiln (London: Witherby & co., Ltd., 1981), p. 321.

3 Editor's Note: The relationship between the parties in insurance/reinsurance determines the label used for a given party. An insurer (or a primary, insurance-policy-issuing company) becomes a reinsurer if it assumes insurance from another insurer, or a reinsured (ceder or cedent) if it cedes insurance to another insurer. In turn, a reinsurer becomes a retrocessionaire if it assumes reinsurance from another reinsurer, or a retrocedent if it cedes reinsurance to another reinsurer. Thus, the assuming or ceding of insurance is reinsurance, and the assuming or ceding of reinsurance is retrocession.

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