Reinsurance is the method used by title insurance companies to spread the risk of loss to more than one company.
In practice, this means that when an underwriter issues a title insurance policy on any single risk which exceeds the company's retention limits (self-imposed, state law imposed, or customer imposed), the issuing underwriter (known as the "Ceder") will then secure (purchase) from some other title insurance companies (known as "Reinsurers"), for consideration, a written agreement of indemnity (known as the "Reinsurance Agreement") covering a portion of the insurance risks. In the case of extremely large policies, companies will accept risk at different levels - primary, secondary, tertiary, etc. This means that one company will have the primary risk and be solely responsible up to that amount. Then the reinsurer(s) will have sole liability for the amount accepted over the primary risk up to a certain amount. The company ceding the risk may accept additional risk at the secondary or tertiary level along with the reinsurers.
Reinsurance is effected either through a "reinsurance treaty" or through "facultative reinsurance".
A reinsurance treaty is accomplished through the execution of a single master contract which automatically affects all policies of the originating company and one or more identified reinsurers. The period of time, the terms and provisions whereby reinsurance is effected are basically matters of contract between the "ceders" and "reinsurers".
Facultative reinsurance is effectuated on a case by case basis. This type of reinsurance is generally engaged in by companies which are of such a size that they ordinarily do not require reinsurance on a regular basis to make their policies acceptable in the market place. This reinsurance is negotiated on a case by case basis effected by means of a specific agreement on each risk.
Any commitment to be issued in excess of $25,000,000.00 must be reviewed by Stewart Title Guaranty Company in order to determine whether reinsurance is required. Any commitment issued prior to said determination must contain the following exception in Schedule B thereof:
"Receipt of reinsurance commitments which are satisfactory to the Company."
An agent must obtain high liability approved for transactions in excess of the agent's contractual limitation. However, the company's reinsurance specialist will handle arrangements for the reinsurance.
Effective September 1, 2011, Sec. 2551.305, Ins. Code allows a Texas licensed title insurance company to purchase reinsurance from a title insurer not admitted in Texas as long as the reinsurer has at least $25 million in assets and the ceding company provides the TDI with 30 days advance notice of its intent to cede to the non-admitted company.
Again, the reinsurance specialist with Stewart Legal Services will handle this situation should the need arise.