Tag Archives: reinsurance contract

Reinsurance Asset Leakage – The Missing Millions

Reinsurance represents one of the largest and most critical assets to insurance companies. Most insurance companies purchase a range of reinsurance protection – proportional treaties, risk excess of loss, catastrophe reinsurance, and facultative reinsurance. The successful collections of known reinsurance recoverables are recognized as essential assets. But what about those assets that are not even on the radar screen? Those that have not been correctly identified or processed? All too often, and for a variety of reasons, many millions of pounds are hemorrhaged by failures adequately to address this very question.

Leakage
Over time, even the best-managed and attentive companies suffer from “leakage.” Leakage can be defined as the loss of assets through failures or gaps in processes or controls. Within the insurance industry these are manifested in three key areas:

  • The under-collection of premiums
  • The overpayment of direct and inwards reinsurance claim liabilities
  • The under-collection of outwards reinsurance collectibles

Examples of leakages within an insurance company’s claims and reinsurance departments would include:

For claims:

  • Inadequate coverage/attachment analyses.
  • Failure to identify or recover deductibles and retentions.
  • Payments beyond policy limits.

For reinsurance:

  • Errors or omissions in calculating premium adjustments, reinstatement premiums and profit commissions.
  • Failing to deduct all inuring and facultative premiums from benefitting treaties.
  • Inability to identify or collect from impaired or insolvent reinsurers.

The root causes of reinsurance leakage include the following:

1. Difficulties identifying all of the parties and contracts involved.
This is particularly an issue either where many years have elapsed between the purchase of the reinsurances and the continuing identification of new and potential recoveries. Over time, contracts can be forgotten, especially smaller inuring contracts and facultative protections. We are all familiar with environmental and asbestos claims that continue to be made against policies in the 1970s, 1960s and earlier. Employees who knew the rationale behind the purchase of complex programs and understood how to interpret and process unusual wordings have long since left.

Identifying all of the parties and contracts can also be a huge challenge when companies are purchased or merged. Many cedants and reinsurers will have changed names or are cloaked behind insurance and reinsurance pools and associations. The common market practice of using fronting companies adds a further layer of complexity. Evaluating the global position between each of the parties – inwards and outwards – will then be essential when it comes to offset and commutation discussions between the parties.

2. Systems and migrations
Nowadays nearly all insurance and reinsurance companies have computer systems to help identify and process necessary reinsurance transactions. There are still a surprising number of companies however who do not have integrated systems and some still use manual processes and standalone spreadsheets. Over time, a company may have introduced several new computer systems, each of which will have necessitated a major data migration exercise. It is self-evident that the more stages involved, especially those subject to human handling, the greater the opportunities for oversights and errors.

The above challenge applies within one company’s operations. What happens when several companies and/or portfolios are merged and all of the records and data needs to be migrated and integrated? The reinsurance programs will all be different, contracts interpreted differently, the technical and accounting systems will be different. Customized systems and processes may need to be introduced. This is a huge challenge that is all too frequently underestimated and often those allocated with the task do not have the time or resource to address it adequately. Corners cut will inevitably lead to greater leakage of assets, both direct and reinsurance.

3. Correct interpretation and application of reinsurance contracts
A group’s reinsurance program commonly involves numerous company entities and countless lines of business being reinsured. The contractual terms and conditions will vary over time, each subject to a number of possible interpretations. Over time, files may be poorly organized – there may be missing treaty documents, incomplete information, undocumented endorsements and anomalous transactions – making correct interpretation and application of the reinsurance treaties and inuring contracts all the more difficult.

Thousands of disputes have arisen involving the relationship between contracts, the intentions of clauses and the meaning of words. With a diverse range of possible causes contributing to inwards claims and in turn outwards reinsurance collections, the correct application of aggregation language is essential.

The interpretations within context of “event,” “occurrence,” and “originating cause” continue to be debated and contested again and again. Loss corridors and the application of coverage sub-limits, deductibles and other terms are other common sources of omission, processing errors and inconsistent procedures.

The problem is not just the complex arguments reinsurers may raise. The issue below the surface is failing to identify relevant contractual entitlements altogether. For example, ensuring that prescribed additional premium adjustments are monitored and pursued, that reinstatements premiums have all been correctly calculated and accounted for following all triggering loss events are common omissions, especially for older and legacy books of business where only the coverage details may have been recorded on automated systems.

Changes in management and personnel, sometimes without all of the required reinsurance knowledge, and ever tightening pressure on resource contribute to the difficulties in ensuring a consistent and accurate process.

4. Follow the cash!
We all know that cash is king. In reviewing any reinsurance program it is essential to follow the cash flow, the reinsurance collateral requirements and reinsurance recoverable collection procedures.

Withheld premium and claim funds, letters of credit arrangements and similar provisions are complex. Add into the mix a matrix of cedant entities and intermediaries. The potential for oversight and error in the accounting and cash audit trails are clear. Redundant reserves can accumulate over time. As well as failing to release essential capital, redundant reserves can distort the value of companies or portfolios offered for sale or commutation.

The London market and Lloyd’s in particular has been very much alive to the challenge of forgotten funds held within brokers’ ledgers and bank accounts. Only a full and accurate reconciliation can identify all of these. Brokers often have little incentive to assist because of the resource cost of identifying the potentially high volume of low value individual transactions (as well as the benefits of holding the cash!).

5. Catastrophe insurance and reinsurance
The proportional and excess of loss markets are very familiar with catastrophe events and the adjustment and payment of claims. Every event throws up its own unique circumstances and challenges. Most of these fall into two generic categories.

The first challenge is accurate data gathering. Does the cedant have effective systems and procedures for accurately recording and tracking all of its loss settlements and capturing the essential information it will need to classify claims by event, by location, originating cause, quantum and proof that these fall within underlying policies for which premiums have been received? What are the risks of losses being incorrectly recorded and either ceded incorrectly or missed from aggregation analyses?

The second challenge is that, once the inwards claims are settled within the terms of the underlying policies, which of these claims can properly be aggregated and collected from catastrophe reinsurers?

Common adjustment challenges include the categorisation of losses as either flood or wind damage following a hurricane storm surge, the use or otherwise of anti-concurrency clauses, the differing operative clauses for triggering business interruption and contingency business interruption clauses and how underinsurance is considered and addressed.

6. Leakage analysis – some real life examples
In the first example, JTW Reinsurance assisted a fellow auditing firm IRI address leakage within a US-based reinsurance operation. It had written workers compensation program business primarily containing per occurrence and aggregate limits. Our review indicated that per occurrence limits had not been correctly applied in a number of instances – such as the impact of a tornado where a loss date for one employee had been entered incorrectly and we were able to establish that it was part of the same loss (which had already exceeded the per occurrence limit). We determined that a number of claims related to a statewide power outage were not covered under the reinsurance contract. Our accounting review indicated that the company had exceeded the aggregate limits for a number of contracts, but was still reimbursing the insured. In total, our review saved the company in excess of $1 million in respect of previously paid claims.

The second example involved an exercise for the reinsurance department of a major US reinsurance company, which had acquired several companies over the preceding ten years. The JTW Reinsurance review involved researching the reinsurance contracts and premium and loss accounting records. We determined that a number of claims had not been billed to reinsurers and also that catastrophe reinsurance premiums had been overpaid because there had been no deduction in respect of business not covered by the reinsurance contract. In total, we saved the company over $2 million being actual cash receipts.

Another claims consultancy provided examples of successes it had identifying leakage of $25 million after analysing three company’s reinsurance programs. The root causes for potential reinsurance recoveries being missed included complex reinsurance arrangements and inaccurate interpretation of these, failure accurately to code and identify facultative reinsurance contracts, systemic issues with the coding of inwards claims from TPAs, and failure to aggregate smaller claims below TPA authority levels.

Remedial action – what can be done?

The range of measures to interrogate a company’s systems, records and procedures to identify leaks and make recommendations to avoid recurrence will always need to be bespoke to each company’s individual circumstances. Examples of these might include:

Identifying reinsurance assets:

  • Ensuring that reinsurance programs and contracts have been correctly interpreted.
  • Premiums – ensuring that all inuring reinsurances have been deducted and that premiums are deducted for non-covered business (eg. TRIA for terrorism premiums).
  • Reviewing claims to ensure that all historic amounts have been included in reinsurance calculations when there is a system conversion.
  • Reviewing contracts to ensure that the company’s systems are designed to recognise all reinsurance claims, particularly for older asbestos and environmental claims.

Integration:

  • As above and also ensuring that all historic claims values are included in any transfer to a new system and that ongoing data is in a format that will update any existing claims.
  • Reviewing of contracts to ensure that permanent information is correct, including the impact of reinsurance commutations.
  • Conducting a leakage review after implementation of new systems to check for missing assets.

Conclusion
Reinsurance asset leakage continues to damage the bottom line of almost every live and legacy insurance carrier. Like an iceberg, however, the true extent of the problem lies below the surface – undetected and/or un-quantified. Expeditions to explore below the surface require dedicated time and resource – and funding. Expeditions which senior management often chooses to ignore. But how would stakeholders react if they knew the true cost of such a head-in-the-sand approach? Could you look your CEO in the eye and assure him or her that your company has done all it could do?

Authors
Julian Ward collaborated with Derek Harris in writing this article. Derek is a chartered accountant who has worked extensively within the London and North American insurance and reinsurance marketplaces. After qualifying with Peat Marwick (now KPMG) in Newcastle he moved with the same firm to Bermuda where he was a senior auditor reviewing primarily insurance operations. Returning to London in 1986 Derek began his experience within legacy business with US F&G Re before joining a specialist audit firm assisting with a complex contractors all risks binding authority.  Back within the carrier world Derek assisted Iron Trades with their reinsurance accounting systems and then Bankers Insurance as run-off manager for their Personal Accident LMX spiral exposures. Since joining JTW in 2001 Derek has specialized in complex technical accounting assignments (in particular reinsurance asset identification and recovery) and due dligence review work. Derek divides his time between our Boston and London offices.

Addressing Objections to a Second Look at a Reinsurance Recovery

Most ceding companies avail themselves of catastrophe reinsurance, a product that pays anywhere from 90 to 100% of aggregated event loss after the ceding company’s retention up to the limits obtained. Generally the retention is determined as some fraction of the company’s surplus and the exposure profile of the company from any one catastrophe. The ceding company wants that retention high enough to not merely be swapping dollars with the reinsurer for frequency events, but low enough that the “shock” of the sudden demand for cash to pay claims does not impair the company.When a broker tells a ceding company what the rate-on-line is for a catastrophe treaty … (the rate for a limit of coverage) or the inverse of a payback period, that number is not assuming any reinstatement of limits occurring. The reinsurers have now worked it that the reinstatement premium will in effect accelerate the payback period and increase the actual rate-on-line by requiring 100% as to time in reinstatement calculations. This was not always the case — at one time the reinsurer only charged for the reinstatement limits at a pro rated factor of the time remaining on the treaty.

Catastrophe reinsurance is somewhat unique in that its limits must be reinstated, but reinstating those limits now generally comes at a price higher than the original limits costs. This is so because the reinstated limits are only good for the remainder of the treaty period, not for the entire annual contract period as were the original limits. For example, suppose a Texas ceding company had a catastrophe treaty for the period from Jan 1, 2012 to December 31, 2012 and a hurricane came through Houston on October 1, 2012, exhausting the cedant’s treaty limit. The cost to reinstate that entire limit is the same dollars as it was to initially secure the original limit, but the second limit is good only from October 1, 2012 to December 31, 2012. Thus, the limits costs are the same for a three-month period reinstatement as they were for a twelve-month original limit of the same amount.

Reinsurers may tell ceding companies at renewal time that they are renewing at the expiring rate, but what the ceding company must be aware of is that a reinsurer’s practice is not unlike the federal government saying it will not raise tax rates, but then taking away some deductions so that the net effect is to increase the tax owed. At renewal, the ceding company may find that because of some change in the treaty definitions initiated by the reinsurer, it will have to pay more for the treaty even thought the “rate” stayed the same. The net effect may be that while the rate did not change, the measurement against that rate did change, making the actual treaty costs increase or coverage decrease.

Consider also that if the ceding company had been carrying its original limits equal to the one in one hundred year storm, and such limits were appropriate, the reinstatement limit is now being carried for a second one in one hundred year event occurring in the same year, but happening again in the next three months, a highly unlikely scenario. The reinsurer is actually making the ceding company reinstate the catastrophe limit at a higher cost for an event that is even less likely to occur … but never fear, the reinsurer will offer to sell the ceding company yet another product that will cover the reinstatement costs … a treaty now for a charge slightly below the reinstatement costs that will pay the reinstatement premiums for the catastrophe treaty so that the ceding company will have reinstatement limits available in the event a second one in one hundred year catastrophe strikes within the next three months. (A pre loss, pre pay option treaty so to speak, where the ceding company can prepay the reinstatements now at a discounted rate!)

One of the primary attributes making for sound-rating analysis is the law of large numbers. That is, enough units are insured providing that sufficient losses are experienced in order to provide predictability to an event. By its very nature, catastrophes are generally unusual events as far as the individual ceding company is concerned. Regional ceding companies may experience an event that exceeds its retention only once every several years. Reinsurers thus, by in large, do not price catastrophe treaties for ceding companies on the individual cedant’s catastrophe experience.

Rates for catastrophe insurance are based on “cat models.” Cat models are used against the ceding company’s risk locations and dollars of exposure at those locations. That is, all other things being equal, having 5 billion dollars of insurance exposure along the coast where the models predict a hurricane will strike will cost the ceding company more to reinsure than 5 billion dollars of inland exposure, where the models show the effects of a hurricane are less intense.

During any catastrophe, claims are filed in multiples of what the ceding company may be used to dealing with on a normal basis, and the ceding company may be required to utilize the services of independent adjusters to augment their own claims personnel services. The combination of high volume, tyranny of the urgent, and utilization of temporary staff provides ample opportunity for mistakes in coding, reinsurance reinstatement premium calculations, and event identification.

Event identification is simply the realization that the loss may not be correctly identified to the named event covered. Not all policyholders may immediately turn in a claim, and a claim that is turned in months after the event may be miscoded and missed in reinsurance recovery. Additionally, not all reinsurance recovery is utilized because the cedant did not realize that certain subsequent events are covered.

For example, suppose a claim is paid and closed, and a recovery is made from the reinsurer for the event. Two years later the ceding company receives a suit alleging bad faith and deceptive practices and other allegations that the claim was mishandled. Many insurance companies will put its Errors and Omissions carrier on notice of the allegation being made. However, not all will notify the reinsurer of possible additional development under the treaty for the catastrophe under the ECO/XPL* portion of the cat treaty, which treaty has already been tapped. The ceding company will likely have a per claim retention under its Errors and Omissions policy, plus it is responsible for the stated limits of the policy it issued to the insured before its Errors and Omissions coverage kicks in. Whereas the cat treaty retention has already been met, meaning the ECO/XPL coverage of the cat contract will essentially provide Errors and Omissions coverage sooner to the cedant.

Additionally, depending on the definition of net retained loss under the treaty, it is possible under given circumstances that the ceding company could collect twice for the same Errors and Omissions loss, once under the treaty’s ECO/XPL and if large enough, additionally under its Errors and Omissions policy. An argument by the reinsurer that a collection under the Errors and Omissions policy inures to the treaty should be challenged with a claim that then the premium of the Errors and Omissions policy must similarly reduce the measure (earned premium) against the rate the reinsurer is charging. In other words the reinsurer does not get the inuring benefit of the Errors and Omissions without a corresponding allowance for its costs to the cedant. However, the cedant may be better off arguing the definition of retained loss under the treaty than to argue for the inuring costs.

During the turmoil of a catastrophic event, it is entirely likely that other reinsurance treaties will be overlooked or receive lesser attention. Most per risk treaties have a single occurrence limit, so that the per risk treaty is not used for catastrophic events. However, in many instances the per risk treaty inures to the cat treaty, so that the costs of the per risk treaty reduces the measure against which the cat rate is multiplied. In other words the costs of the per risk treaty reduces the costs of the cat treaty, because technically, the per risk treaty is supposed to be used up to the measure of its occurrence limit before the cat treaty is utilized; the recovery paid by the per risk treaty reduces the catastrophe loss.

As well, premiums may be missed or double paid, inuring contracts overlooked, or checks directed to the wrong reinsurer. I have seen the case during a catastrophe where a premium payment check was directed to the wrong Lloyds Syndicate, and such Syndicate was either so disorganized or so unethical, that it did not return the misdirected funds until after a formal request was made by the ceding company for the return over a year later. You can’t tell me the Syndicate thought that it was entitled to the money or did not realize it was not in the ceding company’s program.

The reinsurers are not your “friends.” They are not in the business to watch out for the interests of the ceding company — reinsurers are in business to make money, just as ceding companies are in business to make money. In 2010, just the top five reinsurers wrote over 98 billion dollars in premiums.

In a brokered market, the intermediaries do not only work for the interests of the ceding companies — they are in many cases dual agents. The word “intermediary” means go between, and for purposes of finances, intermediaries are the agent of the reinsurer, as provided in a standard intermediary clause ever since the federal case of 673 F.2d 1301; The Matter of Pritchard & Baird, Inc., which held that for purposes of money transfer, the broker is the agent of the reinsurer. Money received by the intermediary from the ceding company is considered money to the reinsurer, but money received by the intermediary from the reinsurer is not considered money to the ceding company.

Even all these years after Pritchard and Baird, I have recently witnessed where an unscrupulous reinsurer told the ceding company that it must collect from the intermediary the refund funds portion representing the intermediary brokerage fees. I have also witnessed where this same ceding company signed and agreed to placement slip terms but some 9 months later when the contract wording was finally provided, change the minimum premiums to equal the deposit premiums within the contract, successfully slipping this change by the cancer chemo patient general manager of the small ceding company and then arguing that it had no record of any change. Such behavior is inexcusable and would never have been caught without an independent reinsurance recovery review.

If reinsurers did things right, then the National Association of Insurance Commissioners would not have needed to adopt a rule requiring that final contract wordings must be signed within 9 months of the contract’s effective date to allow for accounting treatment as prospective, as opposed to retroactive, reinsurance.

It’s absurd to think that this type of rule should be necessary in the first place. The 9-month rule, which really comes out of Part 23 of SSAP 62, requires that the reinsurance contract be finalized — reduced to written form and signed within 9 months after commencement of the policy period. In effect the reinsurers being remiss in generating a timely reinsurance contract punishes the ceding company. The National Association of Insurance Commissioners also found it necessary to adopt the so-called 90-day rule. This rule requires the US ceding companies to take a penalty to surplus in an amount equal to 20% of reinsurance recoverables on paid losses 90 days past due. The rule also requires a 20% penalty to surplus for all recoverables due from so-called “slow payers.”

In effect reinsurers have been so remiss in generating timely contracts and paying bills in a timely manner that the National Association of Insurance Commissioners had to create rules to prod them into doing the right thing by punishing the ceding company if they don’t.

It also never ceases to amaze me the attitude of ceding companies in their thrill of receiving a 25% ceding commission from the reinsurer in a proportional treaty for business that costs the ceding company 33% to generate. Or how the reinsurer now “did them a favor” by allowing a 27% ceding commission in the renewal. Or how that so called quota share treaty that the reinsurer is supposedly a “partner” in has a catastrophe cap included for the benefit of the reinsurer. If this represents what it is like to partner and be the “friend” of ceding companies, then the plaintiff’s bar should certainly also be considered a friend of ceding companies.

Reinsurance intermediaries are required to be licensed in most states. Penalties are imposed on unlicensed intermediaries. In some states, led by New York through its Rule & Regulation 98, reinsurance intermediaries must have written authorization from a reinsured before procuring reinsurance for the reinsured. The reinsurance intermediary must provide the reinsured with written proof that a reinsurer has agreed to assume the risk. The reinsurance intermediary also must inquire into the financial condition of the reinsurer and disclose its findings to the reinsured and disclose every material fact that is known regarding the reinsured to the reinsurer.

Record keeping requirements also exist, mandating that the reinsurance intermediary keep a complete record of the reinsurance transaction for at least 10 years after the expiration of the reinsurance contract. Reinsurance intermediaries under these regulations are now responsible as fiduciaries for funds received as reinsurance intermediaries. Funds on reinsurance contracts must be kept in separate, identifiable accounts and may not be comingled with the reinsurance intermediaries’ own funds.

Most of the time the intermediary’s sales pitch to the ceding company emphasizes how it has a great relationship with the reinsurers, the inference being that such a relationship will ultimately provide for a better price for the ceding company in the negotiation process, as if the reinsurer will do a “favor” for the intermediary which will directly benefit the ceding company. Such fairy tale thinking is best left to children’s books and not in the board rooms of ceding companies. The truth is the intermediary is more dependent for its success on the relationship it has with the reinsurer than it is on the ceding company, and the intermediary is not about to alienate the reinsurer for the sake of a ceding company.

In the brokered market, the ceding company typically has no say in the treaty terms. What most small to medium ceding companies fail to realize is that just as an insurance policy that it issues is subject to being a contract of adhesion by virtue of the legal maxim of contra proferentem, so too is the reinsurance treaty to the reinsurer.

The Latin phrase “contra proferentem” is a standard in contract law, which provides that if a clause in a contract appears to be ambiguous, it should be interpreted against the interests of the person who insisted that the clause be included. In other words, if you speak ambiguously in a contract, your words can literally be used against you. This is designed to discourage people from including ambiguous or vague wording in contracts because it would run against their interests. This is a decisive advantage for many ceding companies in what are often ambiguously defined treaties produced by reinsurers.

All too often the ceding company simply falls in line with what the reinsurer says is the proper interpretation of the treaty language. Whether such complicity is reflective of the incorrect notion that the reinsurer is their “friend” and operates in its best interests or just ignorance, the fact is that ceding companies are often not fully utilizing the product for which they have dearly paid.

The services offered by such entities as Boomerang Recoveries, LLC provide for the ceding company a second look at the treaties it purchased and how it structured its recoveries from its various treaties. Every “touch point” along the recovery process provides for possible missed opportunity. An expressed reluctance by a ceding company to have its recoveries reviewed by an independent reinsurance professional represents misplaced loyalties. The loyalty of a ceding company is to its policyholders or its stockholders, not to its reinsurers.

Good faith and fair dealing owed by a ceding company to the reinsurer does not include foregoing rightful reinsurance recoveries or agreeing with every position of the reinsurer. In this day of increased litigation for Errors and Omissions and Directors and Officers issues, ceding companies should be more concerned with demonstrating their due diligence and exhibiting fiduciary responsiveness by trying to recover every dollar that they are entitled to receive under the treaty contracts, than in worrying about what reinsurers may think about an independent review of its reinsurance recovery process.

Think of it this way, if the ceding company obtained some tax advice on a return it had filed which showed that by refiling, it would be refunded $1,000,000 on the taxes it paid to Uncle Sam, will the officers of that company argue that filing an 1120X (Corporate Amended Tax Return) is a bad idea because it might look like an admission that the company had not taken every deduction entitled to it when it was originally filed or that the IRS might think poorly of the company? That would be absurd, but so too are the arguments that recasting and review of past reinsurance recoveries is a bad idea.

As we have seen:

  1. Every touch point in the recovery process is a potential to miss recovery … its just human nature to make more mistakes at the time of crisis than otherwise.
  2. Catastrophe treaties are not priced for individual company experience, but by models, so that additional recoveries will not directly impact the future rate charged the ceding company.
  3. Reinsurers are not in business to be your friend. Ceding companies pay sufficient premiums to collect all that they are entitled to collect under the treaty.
  4. Reinsurers will not tell ceding companies when a mistake is made or that it owes a ceding company more money.
  5. Intermediaries do not make a commission and are not paid to assure that the ceding company appropriately and fully utilizes the treaties that are placed.
  6. Reinsurance treaties are esoteric and a ceding company cannot rely on an intermediary to watch out for its best interests or interpret contracts in its favor.
  7. Increasing Directors and Officers exposures demand that officers and managers demonstrate their due diligence and the full filling of fiduciary duties. Even if no additional funds are shown as recoverable after a review, the effort is demonstrative of duties fulfilled.
  8. Intermediaries are dual agents and primarily “sell” their services to ceding companies by emphasizing the great relationship they have with reinsurers. Ceding companies need to understand that great reinsurer relationships do not mean better terms for ceding companies or that the intermediary is willing to sacrifice that relationship for the sake of the ceding company. Indeed, intermediary relationships with reinsurers are an extension of and built upon their loyalty to those reinsurers, not the ceding companies.
  9. Reinsurance treaties follow the legal maxim that ambiguities are construed against the drafter of the contract. Ceding companies need a truly independent expert that is not tied to the reinsurer, as is the intermediary, to argue for them and review recoveries on their behalf.

Cronyism has no place in today’s economy. Insurance managers are not reinsurance recovery experts, and utilizing the services of independent reinsurance recovery experts should be thought of as no different than utilizing the services of legal or tax experts to maximize the financial position of the ceding company. The deference ordinarily given to a reinsurer by a ceding company is substantially more than it would ever give to say, an insurer that carried its fleet auto coverage or its Directors and Officers coverage. Ceding companies should stop thinking of reinsurance as some sort of friendship pact and start considering it as they would any other insurance protection it purchased for its financial stability.

* Excess of policy limits, extra contractual obligations