Following Reinsurer

A following reinsurer is a reinsurance company that jointly signs onto a reinsurance treaty with other reinsurance companies, but it is not the reinsurer that negotiated the terms of the agreement.

A following reinsurer is subject to the same terms as the reinsurer responsible for the negotiations – the lead reinsurer – and is often a company that has a more narrow expertise than the lead reinsurer. The market for reinsurance is often dominated by a small number of companies with the buying power and expertise required to provide coverage against a broad range of perils. These reinsurers are the most likely to take the lead on negotiating the terms, conditions, and price of a reinsurance contract, hence they are called the lead reinsurers. All other reinsurers involved in the reinsurance contract are referred to as following reinsurers.

Reinsurance treaties often involve multiple different reinsurance companies providing coverage, with each reinsurer responsible for a specific portion of the overall reinsurance contract. Following reinsurers, that sign on to a reinsurance contract negotiated by a lead reinsurer, typically take on a proportional amount of the risk. The amount of premiums they receive is set at an equal rate with the lead reinsurer.

In some cases, a reinsurance contract may contain a clause that allows the leading insurer to make further updates to the contract. These binding agreements may be made while the contract is in effect, meaning that the following reinsurer is bound to an amended reinsurance treaty. Because of the risk associated with giving one party the ability to make adjustments that all other parties must abide by, following reinsurers may deny the lead reinsurer this level of contract authority.

Because the following reinsurer is not privy to the same amount of detail as the lead reinsurer during negotiations, the lead insurer is typically prevented from being compensated differently than the following reinsurers. The lead reinsurer will also be prevented from acting on any conflicts of interest, as well as any inside information obtained during negotiations.

The separation between lead and following reinsurers has historically been most important in Lloyds of London, where lead reinsurers have additional responsibilities including contract review and claims review. The terminology has evolved to differentiate markets that typically take large shares and set terms and conditions through quoting and those reinsurers who authorize smaller shares, lack specific expertise in a line of business or simply choose to take a non-quoting role in the placement.