Property and construction reinsurance

This line covers reinsurance of the risks of industrial and commercial facilities, warehouses, retail and office centres, equipment, and construction and erection projects. For insurance companies such risks often mean large sums insured, concentration of liability on a single site and dependence on natural catastrophes. Reinsurance makes it possible to accept an object in full while keeping an acceptable retention, and to protect the portfolio from accumulation of losses.

Which risks are reinsured

  • property against fire and allied perils, natural disasters, and unlawful acts of third parties;
  • machinery and equipment against breakdown, and electronic equipment;
  • production interruption — loss of profit and standing charges after a property loss;
  • construction and erection risks: a project under construction, equipment erection, commissioning;
  • liability to third parties during construction and operation — as an additional section.

How protection is structured

For large individual objects facultative reinsurance is more often used: the insurer places a share of the specific risk above its retention and treaty capacity. A portfolio of standard risks is protected by a treaty program — a quota share or surplus — while the accumulation of losses from an earthquake, flood or other natural event is limited by catastrophe excess of loss (more in the non-proportional reinsurance section). For construction projects duration is important: protection runs for the whole construction period, including the maintenance period if one is provided.

Underwriting features

The reinsurer is interested in the quality of the risk, not only the sum insured. Assessed are the construction of buildings, fire protection and security systems, technological processes, distances between objects, seismicity and flood hazard of the area, and the distance of fire brigades. For large objects a risk engineering report is usually required, together with an estimate of the maximum possible and probable loss — the share that needs to be placed depends on it. For construction, the contractor, the technology of works, the schedule and the parties' experience in similar projects matter.

What is usually excluded

  • wear, corrosion, gradual deterioration, and defects known before the start of insurance;
  • war risks, terrorism and political risks, unless included separately;
  • nuclear risks and pollution — except in the cases specified;
  • losses from non-compliance with design and technical standards, fines and penalties;
  • consequential losses, unless production interruption cover is provided.

Key terms

  • sums insured and the basis for valuing them, limits and sublimits by section and for catastrophe risks;
  • deductibles, including separate ones for natural disasters and breakdowns;
  • the reinsurer's share, the cedent's retention, reinsurance commission;
  • conformity with the terms of the original policy, and clauses on risk engineering recommendations;
  • period of protection and, for construction, the work schedule and the extension procedure.

What data is needed for a quotation

  • the composition of the objects, their value and the value of the property by type;
  • location, nature of the activity and technological processes;
  • sums insured and the limits needed;
  • the existing terms of protection and the loss history for the past several years.

How Polis Re helps

The Polis Re broker collects underwriting information, arranges a risk engineering assessment where necessary, selects reinsurers with experience in property and construction risks on the domestic and international market, agrees the terms and supports claims settlement. For property insurance for business see the types of insurance section. To get an offer, send a reinsurance request.