Similar to financial reinsurance but has more risk transfer. It is a retrospectively rated rein surance in which the reinsurer’s liability is finite, i.e. capped. The multi-year contract enables the reinsurer to smooth the cedant’s losses over time by providing funds for paying losses that are eventually restored to the reinsurer under an adjustable clause. The cedant gets credit enhancement by an improvement in key ratios. Investment income is an underwriting component. Finite products include: finite quota share; loss portfolio transfers; time and distance; adverse development cover; spread loss cover; financial quota share.
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A form of retrospectively rated reinsurance in which the reinsurer’s ultimate liability over the term of the contract is typically limited to no more than 300 percent of the premium ceded. Its primary objectives are to stabilize earnings and reduce reinsurance costs.