Yellow card scheme

A reinsurance treaty provides blanket coverage to a cedant for a pre-defined portfolio of insurance business and for a fixed term. In essence, the reinsurer lends its balance sheet to the cedant to write business as if the insurer is using its own capital. This is blind underwriting on the part of the reinsurer and in order to have some comfort in this kind of arrangement, the treaty is then subjected to pre-agreed limits, terms, conditions and exclusions. All business written by the cedant must strictly meet the criteria agreed at inception. In reality, insurers are faced with risks which do not strictly meet the pre-agreed criteria. The underwriter’s obvious option is to seek facultative reinsurance on the open market. However, there are instances where it may not be efficient to purchase facultative reinsurance. The alternative is to seek a Special Acceptance from treaty reinsurers. The lead reinsurer will assess the risk and specifically waiver the criterion which had disqualified the risk from being written into the treaty. The risk is then included in the treaty as if it met all the requirements.