Swing-Rated Reinsurance Premium
A swing rate is a feature in a reinsurance agreement in which ceded premium paid by the Insurance Company to the Reinsurer adjusts based on ceded ultimate losses. An initial provisional ceded premium amount is stated in the reinsurance agreement at the beginning of the contract. The ceded premium adjusts at each financial statement measurement date when ceded ultimate losses are re-estimated. To ensure that the Insurance Company doesn’t pay too much premium to the Reinsurer and that the Reinsurer is still fairly compensated, ceded premium is limited to minimum and maximum amounts. Ceded premium swings with ceded ultimate losses; therefore, when ceded ultimate losses increase, ceded premium likewise increases. Ceded premiums are re-estimated until all claims covered under a reinsurance agreement are closed.