Reinsurance and Facultative Certificates
There is also a specific use case for “underwriting acceptance” in reinsurance—when an insurer insures its own insurance policies with another company.
In these Facultative Reinsurance agreements, the underwriting documentation clause dictates the timeline :
- Binding Period: When the reinsurer accepts the risk, that acceptance usually expires automatically after a set time (e.g., 90 or 120 days) if the policy isn’t issued.
- Documentation Sharing: The “Ceding Company” (the initial insurer) must send all underwriting files to the Reinsurer. If they fail to do so, the Reinsurer can void the coverage .
Summary Comparison: Securities vs. Insurance
| Feature | Securities Underwriting | Insurance Underwriting (MGA/Binder) |
|---|---|---|
| Core Purpose | Sell shares/bonds to raise capital | Accept insurance risk on behalf of carrier |
| Risk Assumed | Market risk (price dropping) | Liability risk (a claim occurring) |
| Key Clause | Representation & Warranties (accuracy of prospectus) | Scope of Authority & Binding Limits |
| Failure Consequence | Lawsuits from investors; loss of fees | E&O claims; obligation to pay policy limits |
| Compensation | Underwriting spread (discount) | Commission or fee |