A $7,500 minimum fee shows why small treaties cost more to run

One trustee charged a minimum administration fee of $7,500 a year to hold reinsurance collateral, on a fee schedule filed with the SEC in 2002, plus $750 to open the account. A trustee is a bank or trust company that holds the collateral in a dedicated account for the cedent, the insurer that passed the risk on, so the cedent can draw on it if the reinsurer does not pay.

A minimum does not scale

A minimum does not move with the size of the trust. On $100m of collateral it works out at 0.75 basis points, and nobody raises it in a renewal meeting. On $5m it is 15 basis points. A basis point is one hundredth of a percentage point. Trustee fees are quoted bilaterally now, meaning negotiated one contract at a time, so treat the level as dated. The shape has not changed.

Think of a taxi's minimum fare. On a long ride you never notice it. On a short hop it is most of the bill.

The paperwork has a floor too

The same shape repeats across the rest of a placement, which is the whole process of arranging one reinsurance deal. It includes legal drafting and actuarial review, where an actuary checks the numbers. It includes the account current, a periodic statement of premiums, claims and balances between cedent and reinsurer, due within 30 days of each month close. And it includes the loss bordereau, a detailed list of the claims under the contract, due within 45 days.

A treaty is the standing contract between cedent and reinsurer. Quota share is the version where the reinsurer takes a fixed percentage of each policy's premiums and losses. Filed quota share wordings, the contract text, set those cycles by period, not by premium, so a small treaty produces roughly the paperwork of a large one.

Proportional costs, the ones that scale with size, behave normally. Greenlight Re pays Citibank Europe a 20 basis point utilisation fee on its letters of credit, per the fee letter dated 19 December 2024, and that rate reads the same at any size. A letter of credit is a bank's written promise to pay the cedent if the reinsurer does not. A utilisation fee is charged on the part of the bank's credit line that is actually in use.

Where the fixed bill lands

For a cedent placing $5m to $50m of limit, meaning the most the reinsurer would pay, the fixed bill underneath the treaty is what decides whether a cession is worth doing at all. A cession is the share of risk passed to the reinsurer.

We are building NextBlock RWA so that part is written once and runs, rather than assembled by hand for every treaty.

In plain words

Some costs grow with the size of a deal and some are flat fees. On a large treaty the flat ones disappear into the total. On a small one they can decide whether the deal is worth doing.

Information only. Not an offer or solicitation.