By covering itself against a single or block of risks, reinsurance gives the insurer more security for its equity and solvency and more stability when unusual or major events occur.

An insurance company that enters into a reinsurance contract with a reinsurance company does so in order to pass off some of their risk in exchange for a fee. This fee may be a portion of the premium the insurer receives for a policy. The primary insurer that cedes risk to the reinsurer has the option of either ceding specific risks or a block of risks. Reinsurance contract types determine whether the reinsurer is able to accept or reject an individual risk, or if the reinsurer must accept all the specified risks.

Counterparty Risk Insurance allows the reinsurance company to review individual risks and determine whether to accept or reject them. The profitability of a reinsurance company depends on how wisely it chooses its customers. In a Counterparty Risk Insurance arrangement, the ceding company and the reinsurer create a facultative certificate that indicates that the reinsurer is accepting a given risk.

Counterparty Risk Insurance contracts are much more focused in nature. They cover individual underlying policies, and they are written on a policy-specific basis. A facultative agreement covers a specific risk of the ceding insurer. A reinsurer and ceding insurer must agree on terms and conditions for each individual contract. Counterparty Risk Insurance agreements often cover catastrophic or unusual risk exposures.

Because it is so specific, Counterparty Risk Insurance requires the use of substantial personnel and technical resources for underwriting activities.

This type of insurance is often used when the standard insurance market cannot provide adequate coverage for a particular risk.

Your organisation may require Counterparty Risk Insurance, especially if it is involved in risk management. Counterparty Risk Insurance is typically used for unique or high-risk situations and requires underwriting on a case-by-case basis.

If you have specific questions or need more information about Counterparty Risk Insurance in the context of your business, feel free to connect, and we’ll provide you with the most optimum solutions.