Reinsurance is basically an insurance policy that an insurance company purchases from other insurance companies. It can either be purchased directly, or some means of risk management, i.e. a broker, etc. The reinsurer company may be a specialized company of reinsurance or can just be another reinsurance company.
Two of the basic methods of reinsurance are facultative reinsurance and treaty reinsurance. Mostly, ceding companies purchase facultative reinsurance. This is when the individual risks and uncertainties are not covered. In treaty reinsurance, a contract for reinsurance between ceding company and the reinsurer is signed.
There are different functions of reinsurance. Some of the risk gets transferred to the reinsurer and thus comparatively less risk is left for the company. The income gets smoothened by reinsurance of a company. The losses are supposed to be limited of the cadent. Other functioning is related to surplus relief and arbitrage.
There are different types of reinsurance, like proportional reinsurance, non-proportional reinsurance, etc. In proportional reinsurance, the issued percentage share of each policy is taken by the reinsures. The arrangement in it can either be according to quota share or surplus reinsurance. Another way is the combination of both. Surplus reinsurance can be used by the ceding company for limiting the losses. Non proportional reinsurance comes into practice when the insurer gives the total claims and they exceed a fixed amount in a certain period of time. There are two main forms of non-proportional reinsurance, i.e. excess of loss and stop loss.
In risk attaching basis of reinsurance, the policies that let the claims arise commencing in the time when the reinsurance is related. In losses occurring basis, those losses are not covered that occur after the expiration date.
The loss experience is stabilized, the insolvency risks of the insurers are lessened, and liability gets limited and capacity increases due to reinsurance. The payment for reinsurance can be much larger than the real price of the risk that is transferred. A reinsurance marketplace that is healthy enough helps in making the insurance companies financially viable. The ultimate purpose of reinsurance is to decrease the exposure to loss and stabilizing the company that goes for reinsurance.
All the above mentioned terms are affiliated with reinsurance. It may be a little daunting if you are new to how it works, but if you visit the site www.reinsurancenews.co.uk you’ll find out a whole lot more information and guides to reinsurance industry. News feeds are updated daily and sourced from top reinsurance sites, so it’s a great place to see all your reinsurance news in one place.
Milton Ferrara is a professional blogger and writer with an experience of half a decade. Known for his amazing take on conventional matters and his boldness for writing new fresh content, he has a strong presence on the web.
Feb 18, 2016 Comments Off on The Importance of Banks in business and other sectors
Dec 31, 2015 Comments Off on How to select the best stock broker?
Dec 28, 2015 Comments Off on Questions about Binary Option Brokers
Oct 27, 2015 Comments Off on Proper Steps to know what stocks to buy