Fire Catastrophe Reinsurance

Definition of "Fire catastrophe reinsurance"

Means used by a direct fire underwriter to protect against accumulation for a fire account, as well as against extremely large fire account liability. For example, heavy liabilities under individual risks can be analyzed by the initial fire underwriter to determine the number of separate fire risks involved. The reinsurance method applied to the risks is a quota share or surplus share treaty with the use of a facultative reinsurance cover if necessary. Under this method, the re-insurer assumes the liability of a proportionate share of the risks in exchange for a proportionate share of the premiums. An extremely large number of losses under individual risks caused by a single event, commonly referred to as a conflagration hazard, arises when different risks may be affected by one fire. An example would be widespread damage to many adjacent private houses. While the loss for each retained individual risk would be small, the aggregate would be so large that it would affect the stability of the fire insurance company. Catastrophe reinsurance would protect any surplus reinsurance and excess of loss reinsurance up to a stated amount.

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