Which type of reinsurance covers a portfolio of risks under a standing agreement?

• A. Treaty reinsurance
• B. Facultative reinsurance
• C. Surplus reinsurance
• D. Retrocession

Answer: (A)

Treaty reinsurance is a standing arrangement where the reinsurer commits in advance to reinsure a defined portfolio of risks from the ceding insurer. This means once the treaty is in place, all policies that fit the agreed classes are automatically covered under the contract, without needing to negotiate each risk individually. It provides ongoing, broad coverage for a whole line of business—like all homeowners policies or all policies within a geographic region—with terms, limits, and pricing set by the treaty.

This approach contrasts with facultative reinsurance, which is assessed and placed on a risk-by-risk basis, rather than through a standing framework. The other option, surplus reinsurance, relates to how much of each risk is reinsured based on the ceding insurer’s retained line and typically doesn’t imply a standing portfolio arrangement across many policies. Retrocession is reinsurance purchased by reinsurers themselves from other reinsurers, not the mechanism by which a portfolio of risks is covered under a standing agreement.

So, the best choice is treaty reinsurance because it specifically describes coverage of a portfolio of risks under a standing, pre-arranged agreement.