Reinsurance

Reinsurance Reinsurance is also known as insurance for insurers or stop-loss insurance. It is the practice whereby insurers transfer portions of their risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim. Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit their own total loss in case of disaster. By spreading risk, an insurance company takes on clients whose coverage would be too great of a burden for the single insurance company to handle alone. The purpose of reinsurance is to protects the cedent against a single catastrophic loss or multiple large losses. Reinsurance also affords protection against casualty losses in which multiple insureds can be involved in one occurrence. The fundamental principles of insurance such as insurable interest, utmost good faith, indemnity, subrogation and proximate cause also apply to reinsurance. Reinsurance can be divided into two basic categories: treaty and facultative. Treaties are agreements that cover broad groups of policies such as all of a primary insurer’s auto business. Facultative covers specific individual, generally high-value or hazardous risks, such as a hospital, that would not be accepted under a treaty. Treaty and facultative reinsurance agreements can be structured on a “pro rata” (proportional) or “excess-of-loss” (non-proportional) basis, depending on the arrangement by which losses are apportioned between the two insurers. An example of a reinsurance agreement; an insurance company might insure commercial property risks with policy limits up to 10 million, and then buy per risk reinsurance of 5 million in excess of 5 million. In this case a loss of 6 million on that policy will result in the recovery of 1 million from the reinsurer. #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful