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PRESENTATION
BY
Definition of Reinsurance
• “Reinsurance is insurance for insurance
companies”
• “Reinsurance is the transfer of part of the
hazards or risks that a primary insurer assumes
by way of insurance contracts or legal provision
on behalf of an insured to a second insurance
carrier, the reinsurer who has no direct
contractual relationship with the insured.”
(according to M. Grossmann, Reinsurance – An
introduction.)
NEED FOR REINSURANCE
A primary insurer needs
• To limit the impact of annual fluctuation in
the losses he must bear on his own
account;
• To be protected in case of catastrophe;
and
• To have capacity to handle larger risks
• To maintain solvency margin
Reinsurance -
Advantages to the Primary insurer
• Reduces the probability of ruin by assuming catastrophe
risks.
• Stabilizes the balance sheet by taking/ceding part of
risks of random fluctuation, risks of change and risks of
error.
• Improves the balance of the portfolios by covering large
and highly exposed risks.
• Enlarges the underwriting capacity by accepting
proportional share of risks and providing part of the
necessary reserves.
• Releases equity from tied up and make it effectively
available for his regular activity.
Advantages to the Primary
insurer….contd
• Enhances the effectiveness by providing add on
services such as:
1. Compiling and presenting underwriting data from
sources around the world;
2. Assessing and evaluating special risks;
3. Offering consultation in loss prevention;
4. Providing loss adjustment support;
5. Performing actuarial work;
6. Training members of the cedent’s staff; and
7. Helping ceding companies to invest their capital, to
recruit managerial staff, find cooperation partners,
arrange mergers, etc.
Reinsurance -
Advantages to the Reinsures
• Better spread across the world
• Long term client relationship
• Lowering the chances of ruin by
retrocession encouraging more balanced
portfolios
• Advantage of law of large numbers
Methods of Reinsurance
Facultative Obligatory