REINSURANCE

REINSURANCE

What is reinsurance?

Everybody knows how to get insurance from a company. We get insurance from insurance company but where the insurance company gets the insurance from? So when an insurance company get itself insured it is known as REINSURANCE where the risk of loss is shared. Suppose an insurance company gets multi claims and face the threat of danger and there is no other option than bankruptcy, the sigh of relief is reinsurance. So the company may be protected to certain level when it is facilitated by reinsurance. Like in twin tower attack the insurance companies may also have come to ground zero if they didn’t have reinsurance.

Types if reinsurance:

There are two types of reinsurances namely, treaty reinsurance and facultative reinsurance. Treaty insurance is important when groups of homogeneous risks come into picture. In this case the reinsurer is obliged as per the treaty and certain sections of business as per the terms and conditions.

Facultative reinsurance is a kind of insurance in which particular underlying risk of an individual contract is assumed. It reduces the ceding company’s exposure

Also the reinsurance is classified into proportional and non-proportional reinsurances. In proportional reinsurance the companies share the premium along with risk.

On the basis of sharing of risks the reinsurance is further classified into Pro-Rata Insurance which is divided into two names like quota share pro rata insurance and surplus share pro rata insurance.

When it comes to non-proportional reinsurance, it means that reinsurer only comes into picture when the certain amount is exceeded in the loss suffered by the insurer.

Merits:

Reinsurance is very important as the insurer may be saved from the single option of bankruptcy when a number of claims are to be settled. For this company has to decide whether it really requires the reinsurance policy or not but the sigh of relief in that bad time can only be given by reinsurance policy.