Reinsurance Agreements

Reinsurance is a transaction between two insurers that legally replaces the liability of one insurer for another. A claim is settled including a promise of periodic payments. The underlying claim is closed, leaving only the periodic payment obligation, which then is transferred through the reinsurance agreement— “in exchange for a single premium payment.” Some of these transactions are styled as periodic payment assumption reinsurance agreements.

Reinsurance agreements are commonly used to accomplish a variety of goals, which include:

  • Funding Workers Compensation settlements pre August 5, 1997 and ongoing obligations (including transfers from self-insured employers that provide a certificate of self-insurance)
  • Policy buyouts
  • Environmental claims
  • Property damage (liability) claims
  • Disability claim settlements and funding disability benefits
  • Punitive damages (where defendant’s PC coverage responds)
  • Wrongful termination (i.e. where the defendant is insured or at least is being defended by an insurer under a reservation of rights)
  • Discrimination, Harassment, Mental anguish
  • Other non-physical injuries

Reinsurance Agreements offer several potential advantages, including:

  • Transfer of mortality and investment risk to the insurance company
  • Reduced administrative burdens associated with issuing periodic payments
  • Additional flexibility offered via available commutation endorsements

Contact Settlement Funding Associates to learn more about Reinsurance Agreements