Yearly renewable term (YRT) or Risk premium reinsurance basis

Reinsurance arrangements written on this basis transfer the mortality risk to the reinsurer. For every age, plan, and policy year, there is a certain reserve per $1,000 of insurance. In calculating the insurer's available surplus capital, this is the liability that is deducted from assets to arrive at the insurer's available surplus capital. Since this reserve amount is already in the insurer's liabilities, it is clear that if the insurer is called upon to pay more than this amount, only the excess over the reserve needs to be taken from the insurer's available surplus capital. In the event of a death claim, assets are reduced by the face amount paid, liabilities are reduced by the reserve amount, and the excess of the face amount over the reserve comes from its available surplus capital. This excess is called the "policy net amount at risk." In the reinsurance agreement the ceding company and the reinsurer agree upon how the policy net amount at risk will be apportioned between them. The ceding company would prepare a schedule of the net amounts at risk for each policy year. The reinsurer would develop a schedule of yearly renewable term premium rates for reinsurance on the ceding company's schedule. The ceding insurer would pay the reinsurer the established premiums for the appropriate net amounts at risk each year. In the occurrence of a claim, the reinsurer would remit payment for the assumed potion of the policy's net amount at risk. Although the policy net amount at risk will decline over time as the policy reserves increase, it is common for the parties to agree to make adjustments only at agreed intervals to ease administration and lower processing costs. This reinsurance method is widely used because it reduces reinsurance to its fundamentals and provides a very flexible mechanism for satisfying the insurer's reinsurance needs.