There should not be any misapprehension as to the distinction between a reinsurance treaty, on the one hand, and a reinsurance policy or a reinsurance cession, on the other.
- A reinsurance policy is thus a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed.
- A reinsurance treaty is merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. The practice of issuing policies by insurance companies includes, among other things, the issuance of reinsurance policies on standard risks and also on substandard risks under special arrangements.