DEFINITION of ‘Special Acceptance’
The extension of coverage for a peril that is not generally covered in a reinsurance treaty. Special acceptance requires the creation of a separate agreement between the ceding company and the reinsurance company.
BREAKING DOWN ‘Special Acceptance’
Reinsurance contracts typically cover a peril or line of business clearly defined in the reinsurance treaty. In a facultative reinsurance agreement, the reinsurance company is able to accept or reject a particular risk on a case-by-case basis, while under a treaty reinsurance agreement the reinsurer automatically provides coverage as long as the peril is listed in the treaty agreement. In some cases, an insurer (i.e. the ceding company) may cover a peril that falls outside of the type of peril normally covered by the contract. In this case, the ceding company will want a special acceptance.
Special acceptances are most commonly found with facultative reinsurance agreements. If a policy underwritten by the insurer falls outside of the terms and conditions of the reinsurance agreement, the insurer can submit a special acceptance that has to be accepted by the reinsurer in writing. The reinsurer has the ability to reject the special acceptance request, at which point the insurer will have to find a different route to obtain coverage of a particular risk. If the reinsurer accepts the special acceptance request, all premiums and losses associated with the newly accepted risk will be included with the premiums and losses under the current reinsurance agreement.
In some cases, multiple reinsurance companies may be party to a reinsurance contract. For example, a lead reinsurer may negotiate the terms of the reinsurance contract, and following reinsurers will be bound to the terms that are negotiated. The following reinsurers may be bound to the special acceptance if they are responsible for liabilities above a certain threshold. If a reinsurer falls outside of this threshold, then it may be able to reject the special acceptance.