Ace the Alberta General Insurance Level 1 Exam 2026 – Insure Your Success Today!

A treaty reinsurance agreement is designed to cover a portfolio of policies or a specific group of risks, which allows both parties to agree on terms such as loss limits and premium payments before the agreement is implemented. This type of arrangement provides the ceding insurer with certainty regarding the reinsurance costs and coverage limits, thereby facilitating budgeting and risk management.

Treaty agreements differ from facultative reinsurance, where each risk is considered individually and no predetermined loss limits or premiums are set until the specific risk is underwritten. Non-proportional reinsurance also has unique features, focusing on the layer of risk exposure above a certain retention limit, rather than a set agreement on all premiums and loss limits beforehand, while proportional reinsurance involves sharing losses and premiums in a ratio, which does not inherently guarantee predefined limits or payments. Thus, a treaty reinsurance agreement effectively encapsulates the pre-negotiated parameters that the question is asking about.