Reinsurance can be defined as 'insuring the insurer'. Just as an individual wants to spreed the risk of loss, an insurer will need similar protection and will seek reinsurance for the largest and most difficult risks, or will see to cover his whole account to protect himself against unexpected losses and catastrophes.
Actually, reinsurance is the shifting a part of all the insurance originally written by one insurer to another insurer. The insurer that initially writes the business is called the ceding company. The insurer that accepts part or all of the insurance form the ceding company is called the reinsurance.The amount of insurance retained by the ceding company for its own account is called the retentation limit or net retention. The insured has no involvement in the contract for reinsurance. The reinsurance agreement is between the insurer. The insurer has a claim only against the insurer. The insured will be unaware of the existence of ant reinsurance agreement.
Reasons for Reinsurance
The main reasons why n insurance company will seek re-insurance are summarized below.
1. Spreed of risk: An insurer wishs to relive itself from uncertainly of loss more than it can bear. So they re insure some of business and spread the risk of loss. In this way, the insurer has security from excess risks......
2. Stability: Reinsurance helps to avoid fluctuation in claims from year to year.
3. Capacity: Every insurer has a financial limit on the size of loss it prepares to accept. By purchasing reinsurance, the insurer can accept all sizes of risk in the knowledge that it can re insure any part of the loss which it feels is too large.
4. Catastrophe: The possibility of complete catastrophe and many claims from on event such as an earthquake can be protected against by special catastrophe agreements with a reinsurer.
5. Statue: The Department of trade and industry wants to ensure that adequate reinsurance arrangements exist under the insurance act. Hence, reinsurance may be compulsory by law in some cases. it is for the security of public wealth and confidence over insurance business.
6. Technical Services: Reinsurance has experience in dealing with the largest and most difficult risks. They can provide information to new and inexperienced insurers, who are often researching new areas of the insurance market.
0 comments:
Post a Comment