Definition Of Fidelity And Surety Catastrophe Insurance In Insurance

Definition of "Fidelity and surety catastrophe insurance"

Cal Ernst, Real Estate Agent Coldwell Banker Hedges

Mechanism used by a fidelity and surety insurance company to spread its liability through reinsurance by issuing a surplus treaty as a first layer of coverage, thereby enabling a cedent to limit its liability on the business written, while at the same time utilizing the flexibility that the surplus method offers. The reinsurance catastrophe cover provides a second layer of coverage. Reinsurance covers are used by the insurance company to:

avoid accumulation of liability on individual principles. Warehouse bonds are an example of such accumulations, because they are required in great number and they result in large aggregate amounts.
achieve a balance among the various types of bonds that the insurer assumes.
reduce violent fluctuations in experiencing high loss ratios on many classes of bonds.