Re Insurance
Content
“RE-INSURANCE ”
EXECUTIVE SUMMARY
Reinsurance typically involves exposures with large and highly variable loss potential. As such, great underwriting and pricing expertise are required. Reinsurance tends to be highly specialized and is probably the most international insurance business. The insured often is unaware that the insurer has reinsured the policy. This fact ordinarily poses no difficulties as the insured’s legal relationship is with the direct writing company, not the reinsurer is unable to do so. Reinsurance is purchased as a strategic tool to efficiently protect and manage an insurer’s balance sheet. Integrity to the balance sheet is essential in maintaining an insurer’s franchise with its policyholders, and with its shareholders and potential investors, who provide the company’s capital base. Balance sheet integrity is also the main focus of the rating agencies. As mentioned above, the need for reinsurance would also follow the same business and financial considerations as an original insured would require to insure with any insurance company. The insurance companies by insuring property, persons or liability representing great values at risk and for large sum insureds, often wish to be able to accept the whole or substantial part of the risk for their own account. The financial strengths of insurance company constraint it from doing so, as it would not be prudent for any organization to trade on its capital for more than its own worth, or for that matter keep every single risk for its net account. This makes it imperative to reinsure a single risk or its portfolio. Thus, reinsurance gives protection against eventualities and
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“RE-INSURANCE ” supplements the need of insurance companies by limiting their loss from any single incident or accumulation of losses arising out of any event. Reinsurance can help stabilize profits for direct writing companies. By limiting the maximum size of losses for which the direct writing company is responsible, great fluctuations in profits are minimized. Reinsurance also provides considerable protection to the ceding company against catastrophic losses caused by natural disasters such as earthquakes and hurricanes and by human-made disasters such as oil pollution. Without reinsurance, the impact of such catastrophic losses might be greater than the primary could absorb. Reinsurance can offer a form of financing for primary companies. This commission offsets some of the direct writing company’s expenses, thus minimizing the cash flow drain associated with writing new business. Finally, reinsurers often provide advice and assistance to primary insurers on underwriting procedures and in claims handling.
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REINSURANCE
Risk is the starting point of insurance. In a situation large number of similar loss exposures, where there is possibility of loss to a few & at the same time there is an element of uncertainty of loss with respect to date, time & quantum, insurance acts as one of the risk management techniques . Reinsurance is insurance for insurance companies. Many insurers around the world purchase reinsurance primarily to reduce their exposure to the risks they have under written in order to provide better protection to their clients. Any risk or exposures that can be insured can also be reinsured. Reinsurance is concern with spreading of risk which are too big to borne by primary insurers. Large risks arise not solely through enormous value of buildings, property, factories, ships and aircrafts but also through aggregation of risks. These indigestible major risk get passed on to reinsures from primary insurers.
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“RE-INSURANCE ”
FEATURES OF REINSURANCE
(1)
Spreading of risk
-:
Reinsurance is like insurance which is practiced by the insurers to spread their loss.
(2)
Principal of reinsurance –: Reinsurance contract is made on the same principles which
governed the original contract of insurance.
(3)
Extent of risk -: An original insurer has insurable interest to the extent if the risk undertaken by him.
(4)
Termination -: Reinsurance can be terminated when the original insurance lapsed for any reason.
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(5)
Recovery of loss -: In the event of loss, the original insurer has to pay the
assured sum first to the insured . then he will recover from the rein surer the reinsures are discharged.
(6)
Liability of insurer -: The rein surer is not liable to the original insurer in the event of loss.
(7)
Discharge of contract -: In the absence of privity of contract between the original party who has insured his subject matter and the reinsurer, the reinsurers are discharged.
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IMPORTANT TERMS IN REINSURANCE
(1)
Direct insurer : The insurer who accepts the risk from the prosper and
who, so far as the policyholder is concerned , is alone responsible for the obligation
(2)
Rein surer : The insurer who grants a guarantee from the direct insurer.
(3)
Ceding insurer : The insurer who obtains a grantee ( or places a reinsurance)
(4)
Reinsurance policy :
The contract of reinsurance except in fire practice where it is termed as guarantee, or guarantee policy.
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(5)
Retention or holding The proportion of the risk which the direct insurer holds on his
own account.
(6)
Line : The amount of the retention of the direct insurers, reinsurance
may accept one or more lines (or a fraction of a line).
(7)
Retrocession-: A reinsurance of a reinsurance i.e. where the reinsurance
desire to reduce the limit of his liability in respect of business accepted.
(8)
Reinsurance commission-: The amount paid by reinsurer to the ceding company as a
contribution to a acquisition an administration costs. It is calculated as a % of the premium received by reinsurer.
(9)
Profit commission -: It is a % of the earned profit reached the reinsurer agrees to
return the because the profit earned on business passing under a reinsurance treaty is deemed to be due to skill and care in the conduct of the business by the direct insurer.
(10)
Underwriter : the person who agree to compensation the loss arising from
the risk is called the insurer, as surer or underwriter.
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NEEDS,UTILITY & METHODOLOGY
Reinsurance is a mechanism which insurance companies used to spread the risk assumed. Reinsurance absorbs & distributes the effect of the insurance industry’s losses so that no single company is over burdened with the financial responsilibility of offering coverage to its policy holders without reinsurance, or though in adequate reinsurance support, unexpected CATASTROPHES, unanticipated liabilities or a series of large losses could push an insurer into insolvency. Through reinsurance, the industries losses are absorbed & distributed among the a group of companies. Catastrophes unexpected liabilities and a series of large losses that might be too much for an individual insurer to absorb could be better handled through reinsurance. Without it, most insurance would be able to cover only the safest of ventures, leaving many moderately risky but worthwhile ventures without a cover. Reinsurance is the technical way to optimize the risk port folio of an insurance company in purchasing reinsurance, insurers seek to improve their financial performance, security &stability over time. Basically, from the direct underwriters point of view,
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Following could be the important functions of REINSURANCE
Capacity: reinsurance provides flexibility for insurers in the size & types of risk & the volume of the business, companies could underwrite. Reinsurers assist in the financing of insurance operation, being used as an alternative to increasing primary insurers capitalization. Expertise: reinsurers supply reinsurance to insurers in specialized areas where the insurers may have little or no expertise. This could be true especially in case writing certain risks for the first time. Stability: properly structured reinsurance arrangement provides different classes of insurance assist insurers by limiting wide fluctuation in underwriting results. Protection: associated with stability, reinsurance provides protection against the large losses, accumulations that can results from catastrophic events such as earthquakes and cyclones.
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Reinsurers offer a wide range of traditional and alternative treaty forms for the assumption of risks of primary insurers. Traditional treaty reinsurance is used to reinsurance precisely defined portfolio. In facultative reinsurance it is mainly large scale risks that don’t fit in the treaty portfolio which are individually evaluated and reinsured. In proportional treaties, reinsurers assumes the same proportion of liability, premiums and losses for each reinsured risk. In non proportional reinsurance, reinsurer grants cover for those claims that exceed a certain fix amount but are still below a defined upper limit. Reinsurance offers various ranges of facilities to the holders’ of policies. Solvency is the important criterion for assessing an insurance company and its performance and adequacy of reserves is vast step of safeguarding of insurance business. Reinsurance constitutes an integral part of the insurance activity. The development of local insurance market with the international industry is also associated by the services provided by the reinsurance brokers in the insurance business.
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PRINCIPALS OF REINSURANCE
Reinsurance contract basically depends upon two principles: (1)_ Principle of Utmost Good Faith - Reinsurers maintain utmost faith in underwriters of their company. These underwriters, in turn, maintain utmost good faith in the underwriters of the primary insurance company. (2) Principle of Indemnity - The principle of indemnity of the insured risk applies automatically on reinsurance. A reinsurer automatically follows the legal and technical features of the reinsured in writing and underwriting a risk. The Insurer Must Retain a Part of the Risk Before Reinsuring. Though there cannot be the reinsurance of the complete risk, there can be a complete retention of risk. Those risks that are within the retention capacity of an insurer must be retained completely.
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PROFILE
Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Individuals and corporations obtain insurance policies to provide protection for various risks (hurricanes, earthquakes, lawsuits, collisions, sickness and death, etc.). Reinsurers, in turn, provide insurance to insurance companies. The reinsurance dose not affect the position of the original insured. The insured to pay reinsurance premium for the risk to the insurer. The financial strength of insurance company it would not be prudent for any organization to trade on its capital for more than its own worth, or for that matter keep every single risk for its net amount. The reinsurance gives protection to insurance companies & minimized the risk of business .
TYPES OF REINSURANCE
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Type of REINSURANCE Proportional reinsurance Quota method Share plus method Non proportional proportionalreinsurrrance Excess loss method Pool loss Method Treaty Reinsurance METHODmethod
Proportional reinsurance Quota method of reinsurance Share plus method of reinsurance
Non proportional reinsurance * Excess loss method * Pool loss method * Treaty method
PROPORTIONAL
Proportional reinsurance (the types of which are quota share & surplus reinsurance) involves one or more reinsurers taking a stated percent share of each policy that an insurer produces ("writes"). This means that the reinsurer will receive that stated percentage of each dollar of premiums and will pay that percentage of each dollar of losses. Premiums and losses are then shared on a pro rata basis. For example, an insurance company might purchase a 50% quota share treaty.
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“RE-INSURANCE ” The maximum underwriting capacity of the cadent would be $ 1,000,000 in this example. Surplus treaties are also known as variable quota shares. Under this method, the amount retained And the amount ceded will represent the fixed share of risk covered by the direct insurer, which places reinsurance with reinsurance company. Irrespective Of the size of the claim , the liability of of the claims Will be shared by the ceding office and the rein surer within treaty.
The methods of proportional reinsurance are as follow-:
(1)
Quota method of reinsurance Share plus method of reinsurance
(a) Quota method of reinsurance -:
(2)
under this method, the ceding office is bound to reinsure such proportion of every risk as stated in the agreement. These methods of reinsurance s are used where the company is new in market. This method is very much useful to rein surer.
(b) Share plus method of reinsurance-: 14
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under this method , treaty refers to reinsurance, the surplus of a risk over the retention of the ceding office. The treaty would mention an amount as the ceding office maximum retention as also the scope of business. When a risk is insured the ceding office has a free choice, within the liability in treaty.
Proportional reinsurance Non proportional reinsurance Non-proportional
Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority." An example of this form of reinsurance is where the insurer is prepared to accept a loss of $1 million for any loss which may occur and they purchase a layer of reinsurance of $4 million in excess of $1 million The main forms of non-proportional reinsurance are excess of loss and stop loss.
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“RE-INSURANCE ” Excess of loss reinsurance can have three forms - "Per Risk XL" (Working XL), "Per Occurrence or Per Event XL" (Catastrophe or Cat XL), catastrophe excess of loss, the cadet’s per risk retention is usually less than the cat reinsurance retention (this is not important as these contracts usually contain a 2 risk warranty i.e. they are designed to protect the reinsured against loss covers are then known as "Stop Loss" or annual aggregate XL. in these form of cover the ceding office and the reinsurer do not share some loss at all. the ceding office will underwrite its rentention as aform of first loss insurance i.e it will bear all losses up to certain amount of reinsurance. the premium under this will be quoted by the reinsurer as a % of total premium received by the ceding co.
(1)
Excess loss method-:
This another method of reinsurance which is sometime used. this medthod assumes that an insurer decides the maximum under a treaty whrerby the reinsurer will be responsible for the amount of loss and above the amount retained by the direct insurer. (2) Pool method of reinsurance -: This method provides against risks of insurer event may involve heavy loss, damage. the member co acept to pool together all their business to a leading office and the payment is made by this leading office.
(3) Treaty method of reinsurance -: Treaty is reffered to an agreement between the ceding office and a reinsurer or a number of reinsdures, whrerby the reinsurers is bound to accept a fixed share of risk coming within the scope of the agreement.
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Risk-attaching Basis
A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage for the whole policy period when written. All claims from cadent underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from decant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.
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LOSS OCCURING BASIS
A Reinsurance treaty from under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered. As opposed to claims-made policy. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for most policies.
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CLAIMS MADE BASIS
A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred.
CONTRACT OF REINSURANCE
Most of the above examples concern reinsurance contracts that cover more than one policy (treaty). Reinsurance can also be purchased on a per policy basis, in which case it is known as facultative reinsurance. Facultative reinsurance can be written on either a quota share or excess of loss basis. Facultative reinsurance is commonly used for large or unusual risks that do not fit within standard reinsurance treaties due to their exclusions. The term of a facultative agreement coincides with the term of the policy.
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“RE-INSURANCE ” Facultative reinsurance is usually purchased by the insurance underwriter who underwrote the original insurance policy in the insurance company.
RISK TRANSFER
The main use of any insurer that might practice reinsurance is to allow the company to assume greater individual risks than its size would otherwise allow, and to protect a company against losses. Reinsurance allows an insurance company to offer higher limits of protection to a policyholder than its own assets would allow. For example, if the principal insurance company can write only $10 million in limits on any given policy, it can reinsure (or cede) the amount of the limits in excess of $10 million.
Reinsurance’s highly refined uses in recent years include applications where reinsurance was used as part of a carefully planned hedge strategy.
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INCOME SMOOTHING
Reinsurance can help to make an insurance company’s results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage.
SURPLUS RELIEF
An insurance company's writings are limited by its balance sheet (this test is known as the solvency margin). When that limit is reached, an insurer can either stop writing new business, increase its capital or buy "surplus relief" reinsurance. The latter is usually done on a quota share basis and is an efficient way of not having to turn clients away or raise additional capital.
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ARBITRAGE
The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than what they charge the insured for the underlying risk.
REINSURERS EXPERTISE
The insurance company may want to avail of the expertise of a reinsurer in regard to a specific (specialized) risk or want to avail of their rating ability in odd risks.
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HOW REINSURANCE CREATES VALUE TO PRIMARY INSURERS?
Reinsurance benefits primary insurers in following ways: Reduced volatility of underwriting results . Capital relief and flexible financing . Excess to measurer’s expertise and services, especially in the fields of
product development, pricing and underwriting and claim management. The reinsurance value is considered too great extent to get a part reinsured with another insurance company.
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THE ABOVE BENEFITS VARY IN FOCUS FOR LIFE AND NON-LIFE INSURANCE. ROLE OF REINSURANCE IN-:
(1) (2)
Life insurance Non life insurance
NON LIFE INSURANCE
Non-life insurance buys reinsurance to protect its capital base against large deviations from expected loses. This is most essential in case of catastrophic losses. Reinsurance allows non-life insurers to accept more business with the same amount of capital. By buying reinsurance coverage, insurers transfer risk to reinsurers and do not allocate capital for these risks. Thus primary insurer can spread their overhead cost of distribution network, administration and claim handling over a broad base of business and thereby benefit from economies of scale.
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“RE-INSURANCE ” Reinsurers play a key role in the assessment and underwriting of risk. They also ensure the continuous supply of insurance coverage to companies in the time of market distress.
LIFE INSURANCE
Life insurers buy reinsurance to minimize the potentially negative impact of large risks. Life insurers want to limit their exposure to high sum assured for individual risks or to avoid an accumulation of mortality risk in case of group cover schemes. Moreover, long term reinsurance contracts protect insurers against claims variations, for instance, variations in mortality over time. One of the major reasons for entering into reinsurance contract is that reinsurers provide expertise in underwriting and claim management as well as on pricing and product development.
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“RE-INSURANCE ” Reinsurers' broad expertise also helps insurers in product development and pricing of new products. Insurers can refine risk into broader classes and can minimize their exposure with the help of innovative products. Since they mainly focus on savings and investment business, life reinsurer allows them to transfer some proportion of mortality and disability risk component.
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REINSURANCE AS A RISK MANAGEMENT TOOL
Reinsurance is used by primary insurers as an effective risk management tool. Primary insurers can use different types of reinsurance products to meet their need of balance sheet protection and capital relief. They draw their reinsurance plan by using all forms and types of reinsurance contracts. The primary insurers use some techniques to transfer their risk to reinsurers and also to analyse what type of contract will be suitable for them according to their risk portfolio or the policies underwritten by them and the terms and conditions mentioned therein. Based on its business needs, an insurer negotiates with reinsurer, directly or through a broker, to determine the terms, conditions and costs of a reinsurance contract.
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TRADITIONAL TECHNIQUES USED BY PRIMARY INSURERS
There are basically two types of reinsurance agreements: -
• Treaty • Facultative
TREATY
Reinsurance Treaties automatically cover all risks written by the insured that fall within their terms, unless they specifically exclude exposures. It does not require to review individual risks, but there should be a careful review of underwriting philosophy, practice, historical experience of the primary insurance company, its attitude towards claim management and engineering control, management's general background, expertise and planned objectives.
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Treaties are of two types - Proportional and Non-Proportional.
NON PROPORTIOANL TREATY
In this type of treaty, reinsurance cover begins once the amount of the claim exceeds a pre-determined amount. For example, in a contractual language, it is termed as, treaty of Rs. 600 Corers in excess of Rs. 100 Corers, i.e., a Rs. 700 Crores cover with a deductible of Rs. 100 Crores. Premiums under the non proportional treaty will be separately quoted by the rein surer as the total percentage of premium received by the ceding company for the concerned class of business.
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PROPORTIONAL TRAETY
(A)
In this type of treaty, the reinsure and the ceding company share the
premium proportionally. For example, as per the agreement, if the proportionate share of the INSURANCE BUSINESS. (B) Premium between both the parties (ceding insurer and reinsurer) is 40% and 60% respectively, then in case of total loss of Rs. 100 Corers, primary insurer will pay Rs. 40 Crores and the reinsurer the remaining Rs. 60 Crores (C) Each year insurance companies provide their reinsurers with information on intended policies concerning maximum exposures, estimated premium income, classes of business, marketing strategies, etc.
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FACULTATIVE
Facultative reinsurance contracts cover individual policies and are written on an individual basis. This agreement covers specific risks and requires substantial personnel and technical resources for underwriting individual risk. Since there is a potential loss in these types of agreement, reinsurer must possess necessary knowledge to calculate each risk accurately. These contracts are also used to supplement treaty arrangements, when treaties don't cover any specific risk or exclude that risk. Separate facultative can be used to cover this by entering into agreement with another reinsurer.
RETROCESSION
Sometimes reinsurer also may not be able to cover full exposure as per agreements so he again buys its own reinsurance known as retrocessions,to stabilize results and fulfills risk-spreading objectives of reinsurance transactions. Reinsurance agreements range from simple to complex. An insurer may purchase reinsurance cover from a single reinsurer or it can cover the same risk by reinsuring it with many reinsurers. This process is known as Layering. It is again one of the risk management tools of primary insurers.
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NON TRADITIONAL TECHNIQUES
From past few years, some new risk transfer techniques have been used known as "Alternative Risk Transfer" Techniques like finite reinsurance for both life and non-life reinsurance and multi-year, multi-risk property / casualty contracts. Finite contracts contain major profit (loss) sharing elements, which limit the risk transfer to the reinsurer. Under multi-year, multi-risk property / casualty contracts, reinsurers commit to pay only if the total losses for several different risks over an extended period (often three years) exceed a fairly high threshold. Premiums for these contracts are low, because they are designed to cover only that low frequency, high severity cumulative losses that are unbearable by primary insurers.
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REINSURANCEN IN INDIAN PERSPECTIVE
(1)
After the nationalization of insurance business, General Insurance
Corporations (GIC) of India was made responsible for reinsurance protection. It has been providing its SERVICES TO INSURERS. (2) Services to the Indian market for the last 30 years. It has developed necessary skills and has qualified manpower to take care of the growing needs of the expanding Indian industry. It mainly covers only non-life insurance but now it has also started its business in life insurance sector. (3) As per the apex regulatory body IRDA (Insurance Regulatory & Development Authority of India), currently the domestic non-life insurance companies, both public and private, need to cede 20% of their business with GIC compulsorily. This limit will further be reduced to 10% from April 2008. (4) 75% of the GIC's premium income comes from within the country.
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“RE-INSURANCE ” (5) The government may allow foreign reinsurance companies to set up branch offices in the country with certain regulatory restrictions. At present, foreign reinsurers are already allowed to set-up representative offices in the country. (6) Finance Ministry is considering relaxation in present FDI limit of 26% in relation to reinsurance companies. This will definitely improve the position for Indian partners as presently they have to bear remaining 74% against set capital requirement of Rs. 200 Crores. (7) Private sector companies backed by reinsurers will definitely get benefit, if deregulated environment as their retention capacity will improve and they will be able to sustain greater risk exposure. (8) Swiss Re, one of the largest reinsurance companies in the world, is planning to enter the health reinsurance business in India. It will provide advisory services on product design and development, pricing, and also offer its underwriting services.
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MAIN CHALLENGES
1) 2) 3) 4)
Adequate pricing for reinsurance products. Reinsurance should provide for terrorism risk. It should also provide for cyber terrorism. One of the major challenges is to evolve a system to capture risk accumulation and catastrophic exposure data. Managing reinsurance in electronic form. Reinsurance companies have to be in pace with ever-evolving business and legal environment. Low interest rates and decelerating economic growth.
5) 6)
7)
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REGULTATORY FREMWORK IN REINSURANCE
1) Every insurer should retain risk proportionate to its financial capability and business volumes. 2) Insurers are also required to assure certain percentage of each policy to be reinsured with the national reinsurer. It is mandatory for non-life insurance business. 3) Reinsurance contract are required to be revised every year and all disclosures should be submitted to the IRDA forty-five days before the start of the financial year. 4) Private life insurance companies are not allowed to enter into reinsurance contract with their promoter company or its associates, only LIC can reinsure its policies with GIC. 5) These regulations aim to expand the retention within India, provide the best protection and to simplify the administration.
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(6) The placement of reinsurance business from be Indian market is governed by reinsurance regulation by IRDA. (7) The objective of the regulation is to maximize the retention of premium within the country. (8) Placement of 20% of each policy with national re subject to a monetary limit for each classes. (9) Inter-company cession between four public sector company. (10) The treaty and balance risk after automatic capacity are to be first offered to insurance co in the market before offering to reinsures.
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LIST OF REINSURANCE COMPANIES
Company
Net premium $
Munich re Swiss re Hanover re Scor re Everest re Partner re
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24,218 23,202 8,907 6,948 3,875 3,689
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Case Study On Swiss Reinsurance Company
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INTRODUCTION
Swiss Re (Schweizerische Rückversicherungs-Gesellschaft AG, SIX: RUKN) is the world’s second largest reinsurer, after having acquired GE Insurance Solutions. Founded in 1863, Swiss Re operates through offices in more than 25 countries. General Electric owns 8.9% of the firmSRE (formerly Luxembourg European Reinsurance S.A.) is a subsidiary of Swiss Reinsurance Company which will gradually assume the assets, liabilities and ongoing business of Swiss Re' s various reinsurance subsidiaries domiciled in Europe, including reinsurance business written directly by the parent company through branches in Italy, Germany and France.
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HISTORY
The Swiss Reinsurance Company of Zurich was founded on December 19, 1863 by the Helvetia General Insurance Company (now using the trade name of Helvetia insurance) in St. Gallen, the Schweizerische Kreditanstalt (Credit Suisse) in Zurich and the Basler Handelsbank (predecessor of UBS AG) bank in Basel. Like the fire of Hamburg in 1842 (which led to the foundation of the first professional reinsurers in Germany, the great fire of Glares in 1861 showed that insurance coverage was totally inadequate in Switzerland in the event of such a catastrophe. Hence the need to provide more effective means of coping with the risks posed by such devastation.
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“RE-INSURANCE ” On 10/11 May 1861, more than 500 houses went up in flames in the town of Glarus. Two thirds of the town sank into rubble and ashes; around 3000 inhabitants are made homeless. The company’s articles of association were approved by the government of the Canton of Zurich on 19 December 1863. The foundation capital, which was 15% paid up, amounted to 6 million Swiss francs. The Swiss Reinsurance Company was the lead insurer of the World Trade Center during September 11 attacks which led to an insurance dispute with the owner, Silverstein Properties.
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CORPORATE HEADQUARTER
Swiss Re is headquartered in Zurich where the parent company’s main premises has stood on the shores of Lake Zurich since 1864. On 31 October 2008, Swiss Re completed GBP 762 million acquisition of Barclays PLC's Barclays Life Assurance Company Ltd.
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LONDON HEADQUARTER
Its new London headquarters are located in the award-winning 30 St Mary Axe tower, which opened on May 25, 2004. 30 St Mary Axe is London's first environmentally sustainable tall building. Among the building's most distinctive features are its windows, which open to allow natural ventilation to supplement the mechanical systems for a good part of the year. The landmark London skyscraper, designed by architect Norman Foster and popularly known as 'the gherkin’, was confirmed sold on February 5, 2007 .
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SWISS REINSURANCE COMPANY KEY DATA
(1) Country -: (2) Major industry -: (3) (4) (5) (6) (7) (8) (9) (10) Sub industry -: Employees -:
Switzerland Financial Insurance company 11,560 6,726,696,145 346,542,208 915,375 U.S DOLLAR OTC Namenekie
Market capital -: Share outstanding -: Closely held Currency Exchange Share type -: -: -: -:
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HIGHLIGHT
1) Swiss Re' has a diversified business mix, which is evident from the premiums earned in 2006. 2) In 2006, 61% of group gross premiums earned were from the non-life business and 39% from life and health.
3) Non-life gross premiums earned in 2006, 35% was property business,
26% liability, 11% motor, and 28% other lines. 4) The group acquired GE Insurance Solutions (GEIS), which was the fifth largest reinsurer, worldwide, at the time of the acquisition, in June 2006. 5) This acquisition made Swiss Re the world's largest and most diversified reinsurer. The GEIS acquisition is expected to generate cost synergies of at least $300 million per year.
6) Swiss Re displaced Munich Re for the top position in AM Best's
2007 ranking of the top 35 global reinsurance groups, based on 2006 gross premium written.
7) Swiss Reinsurance Company (Swiss Re or 'the group') is the world's
largest rein surer. This profile offers a comprehensive review of Swiss Re's operations and performance.
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SUBSIDIARIES
Broker dealer Swiss Re Capital Markets (SRCM), is a broker-dealer and leading underwriter and developer in the insurance-linked securities market. Since 1997 SRCM has underwritten over USD 15 billion of ILS including Insurance-Linked Bonds (ILBs) also known as Catastrophe Bonds (Cat Bonds) for third-party clients and its parent, Swiss Re. Swiss Re Capital Markets has developed new security types such as earthquake bonds. Swiss Re Capital Markets also developed the parametric index trigger, the ILS shelf program, the first ILS synthetic CDO, and the first extreme mortality bond (linked to life risk).
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VISION
A.
To be the no. 1 company in the global world. maintained the corporate image to increase the market share .
B. To provide best quality of products & services to create &
C.
To increase the productivity of company.
D. To maintained the profitability of the company. E. To maintained the integrity & honesty of venture. F. To maintained the harmonious relationship with the employee &
management of business.
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PROFILE
Swiss Reinsurance Company is a Swiss global company focused on reinsurance products and financial services solutions to manage capital and risk. The company was established in 1863 after the great fire in the town of Glarus revealed the inadequacies of the insurance coverage in Switzerland. The objective was to provide more effective means of coping with the risks posed by a catastrophe Today Swiss Reinsurance Company has grown and expanded to become the world’s largest reinsurer covering a wide range of risks from life to liability. Swiss Reinsurance Company is a Fortune 500 company.
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ACTIVITIES
Property and Casualty Reinsurance Industry Reinsurance Specialties Reinsurance Commercial Insurance Life Insurance Health Insurance co.
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Financial Services Asset Management Capital Management and Advisory Credit Solutions Fund Management Private Equity Fund of Funds Run Off Real Estate Office Space for Rent Apartment for Rent Property for Sale Acquisition e-Business Life and Health Swiss Reportal Client Services Property and Casualty
•
•
Swiss Reinsurance’s net income in FY 2006 was CHF 4,560 million which was 97.91 % more than what it was in the fiscal before business if reinsurance .
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“RE-INSURANCE ” Swiss Reinsurance is headed by Mr. Jacques Aigrain who is the CEO of the company Swiss Reinsurance employs over 9,000 people in organization.
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Case study on General Insurance Corporation Of India
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LIST OF GENERAL INSURANCE COMPANIES IN INDIA
A. B. C. D. E. F. G. H. I.
General Insurance Corporation Of India United India Fire & General Icici Lombard General Insurance Company Iffco-Tokio General Insurance Co Ltd Bajaj Allianz General Insurance Company Limited Bajaj Allianz General Insurance Tata Aig General Insurance Co. Limited Hdfc Chubb Gen Insurance Company Limited Hdfc Chubb General Insurance Company
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“RE-INSURANCE ”
INTRODUCTION
The General Insurance Corporation of India was incorporated in the year 1972 under the company's act 1956 as a private company. In November 2000, the company was approved as the "Indian Reinsurer". Since then the General Insurance Corporation of India has been providing reinsurance supports to public sector as well as to other private general Insurance Companies. The efbrfective reinsurance practices adopted by the corporation has led it to be accepted globally. Presently it holds business particularly the reinsurance programme with the companies in Maldives, Kenya, Malaysia, Mauritius, Middle East, Africa and Sri Lanka. As to the statistics, during the year 2003-04, the net premium income of the Corporation has grown to Rs 4,162.98 crore in comparison to Rs 3832.79 crore in the previous year. The total asset of the corporation has reached at Rs 16,441.13 crore as on 31 March 2006.
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“RE-INSURANCE ” Besides reinsurance business, the corporation has participated in the share capital of Kenindia insurance company Ltd.
Public Sector General Insurance Companies In India
The four public sector general insurance companies in India are as follows:
• • • •
National Insurance Company. New India Assurance Company Ltd. Oriental Insurance Company Ltd. United India Insurance Company Ltd
The above four general insurance companies in India de-linked from the general insurance company in the year 2000. As to the statistics, the gross premium of the above four companies have reached at Rs 14,285 crore in 2003-04. General insurance is also treated as reinsurance in India. General Insurance Corporation of India (GIC Re) is the sole Reinsurance company in the domestic reinsurance market in India .
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“RE-INSURANCE ”
PROFILE
General Insurance Corporation of India (GIC Re) is the sole Reinsurance company in the domestic reinsurance market in India with more than three decades of experience in the Re-Insurance business. GIC has its registered office and headquarters in Mumbai.. The next landmark happened on 19 April 2000, when the Insurance Regulatory and Development Authority Act, 1999 (IRDAA) came into force. This act also introduced an amendment to GIBNA and the Insurance Act, 1938. An amendment to GIBNA removed the exclusive privilege of GIC and its subsidiaries for carrying on general insurance in India.
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HISTORY
The entire general insurance business in India was nationalised by the General Insurance Business (Nationalisation) Act, 1972 (GIBNA). The Government of India (GOI), through Nationalisation took over the shares of 55 Indian insurance companies and the undertakings of 52 insurers carrying on general insurance business. General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of GIBNA. It was incorporated on 22 November 1972 under the Companies Act, 1956 as a private company limited by shares. GIC was formed for the purpose of superintending, controlling and carrying on the business of general insurance. As soon as GIC was formed, GOI transferred all the shares it held in the general insurance companies to GIC. Simultaneously, the nationalised undertakings were transferred to Indian insurance companies. After a process of mergers among Indian insurance companies, four companies
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“RE-INSURANCE ” were left as fully owned subsidiary companies of GIC (1) National Insurance Company Limited, (2) The New India Assurance Company Limited, (3) The Oriental Insurance Company Limited, and (4) United India Insurance Company Limited. In November 2000, GIC was renotified as the Indian Reinsurer and through administrative instruction, its supervisory role over subsidiaries was ended. With the General Insurance Business (Nationalisation) Amendment Act 2002 (40 of 2002) coming into force from March 21, 2003 GIC ceased to be a holding company of its subsidiaries. Their ownership was vested with the Government of India.
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THE MISSION OF GIC
1) To provide need-based and low cost general insurance covers to the
rural
population keeping in mind their low premium paying
capacity
2) To administer a crop insurance scheme for the benefit of farmer
3) To develop and introduce covers with social security benefits.
4) To develop a marketing network throughout the country including
areas with low premium potential OF Business.
5) Promote balanced regional development irrespective of cost
considerations and make the benefits of insurance available to the masses.
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BUSINESS OF GENERAL INSURANCE
(1) The Corporation does not write any direct insurance business
except the Aviation insurance business of Air India, Indian Airlines, Hindustan Aeronautics and Crop Insurance. (2) It receives by way of reinsurance 20% of all the direct business written in India by the Subsidiaries. (3) GIC and its subsidiaries function through a network of 4167 offices spread across the length and breadth of the country. (4) Agents, Development Officers and Employees at Branch, Divisional and Regional Offices, of the four subsidiaries, form the customer interface . (5) GIC and its subsidiaries have a total workforce of around 85,000.The General Insurance Corporation has a consistent profit and dividend paying record accompanied by a steady growth in its financial resources. (6) Through investments in the Govt. sector and socially oriented sectors, GIC has contributed to the nation's development. It is one of the largest Financial Institutions in the country. (7) The other ventures initiated by GIC are GIC Mutual Fund and GIC Housing Finance.
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“RE-INSURANCE ” (8) Growing at the annual average rate of 17%, GIC's Net Premium Income stood at Rs. 1710.26 crores as at 31st March 1999. Total Investments of the corporation as at 31st March 1999 amounted to Rs.4556.15 crores.
(9) The Capital and Funds of the Corporation stood at Rs. 2914.64
crores as at 31st March 1999.
(10) The Government of India has also entrusted the Corporation with the administration of various schemes for social amelioration and public welfare.
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Management of General Insurance Corporation
Chairman Cum Managing Director Mr. Yogesh Lohiya
Board Of Directors
Mr. Tarun Bajaj Mr. O.P Bhatt Mr. M.Ramdas MR.M.V Gowada Mr. Kamlesh .S. Vikamsey
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TYPES OF QUESTIONS REGARDING REINSURANCE What is Reinsurance?
Ans- : Reinsurance is the passing of risk from a "front writing" insurance company to a reinsurance company. The front writing insurer earns a fee for issuing the insurance and for administration of the product and claims. The net premium is ceded to a producer-owned reinsurance company. This premium earns investment income. After claims are paid this reinsurance company may recognize a net underwriting profit on top of the investment income. (2) Who Can Own a Reinsurance Company? Reinsurance companies can be held by individuals, corporations or trusts.
(3) What Products Can Be Written into a Reinsurance Company?
Today car dealers are reinsuring extended service contracts, GAP protection, maintenance plans, loyalty points, appearance protection packages, theft protection, limited warranties and more. This list of reinsurable products continues to grow.
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(4)
What about Taxes?
There is no way to avoid taxes entirely but your reinsurance company can grow in a tax deferred environment. You may be able to manage the type of tax and the event of taxation to best meet your needs. It is always important to first consult a professional tax advisor.
(5) Why wouldn’t dealers reinsure their products?
Ans-: In the past there were few common reasons dealers didn't reinsure. a. Most of all dealers simply were not aware reinsurance was an option, even though it has been available for over 25 years. b. Today more and more dealers qualify for reinsurance. (6) What are the risks? Ans -: There is no guaranteed return for a producer-owned reinsurance company, but with proper structure in place the downside risk is limited to the initial capital contribution, typically $3,500 to $8,000.
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“RE-INSURANCE ” (7) Is this self Insurance? Ans- : No, this is one of the most common misconceptions about reinsurance. Our programs are fully insured by highly rated nationally recognized companies. You are not creating contingent liabilities or putting your business at risk. (8) What exactly does a reinsurer do? Ans- : Reinsurers take on part of the risk that insurers assume from their
private or commercial clients. Insurers need reinsurance because some losses would just be too expensive for them to carry on their own. Reinsurance is not just sought for large risks like power plants, but also for smaller risks such as roof damage to houses. A reinsurer therefore assumes individual risks or assumes risks en bloc, i.e. it accepts a share in a large number of individual risks.
(9) What is the purpose of business?
Purose of reinsurance is to share the load among several carriers. In the event of a claim, the reinsurer pays its share of the loss to the primary insurer. For this service, the reinsurer is paid a share of the insurance premium in accordance with its level of participation in the risks.
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“RE-INSURANCE ” (10) Expertise for the future is part of our business? As reinsurers we have to anticipate changes and make reliable predictions of future developments in order to make reliable and valid risk assessments. Munich Re is therefore actively involved in a whole range of research fields and performs important work in the investigation of loss causes.
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BIBLIOGRAPHY
• REINSURANCE BOOK
• INSURANCE BOOK
• SCENARIO OF INSURANCE
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“RE-INSURANCE ”
WEBLIOGRAPHY
WWW.GOOGLE.COM
WWW.REINSURANCE.COM
WWW.INSURANCE.COM
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CONCLUSION
AFTER GOING THROUGH THE ENTIRE PROJECT I CAME TO CONCLUSION THAT
THE REINSURANCE PLAYS A VITAL ROLE IN PROTECTING THE ENVIORNMENT OF COMPANY
& MAINTAING THE FINANCIAL STRENGTH OF COMPANY. IT IS
CONCERNED WITH SPREADING OF RISK IN BUSINESS. IT ALSO PROTECTING THE CEDING COMPANY BY MINIMISING THE BARRIERS OF INSURANCE.
THERE ARE MANY COMPANIES FOLLOWING THE REINSURANCE TECNIQUES TO STABILISE THE POSITION OF INSURANCE BUSINESS.
It insures the every aspect of insurance & eventualities of business. The reinsurance also offers the financing from primary insurance company.
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EXECUTIVE SUMMARY
Reinsurance typically involves exposures with large and highly variable loss potential. As such, great underwriting and pricing expertise are required. Reinsurance tends to be highly specialized and is probably the most international insurance business. The insured often is unaware that the insurer has reinsured the policy. This fact ordinarily poses no difficulties as the insured’s legal relationship is with the direct writing company, not the reinsurer is unable to do so. Reinsurance is purchased as a strategic tool to efficiently protect and manage an insurer’s balance sheet. Integrity to the balance sheet is essential in maintaining an insurer’s franchise with its policyholders, and with its shareholders and potential investors, who provide the company’s capital base. Balance sheet integrity is also the main focus of the rating agencies. As mentioned above, the need for reinsurance would also follow the same business and financial considerations as an original insured would require to insure with any insurance company. The insurance companies by insuring property, persons or liability representing great values at risk and for large sum insureds, often wish to be able to accept the whole or substantial part of the risk for their own account. The financial strengths of insurance company constraint it from doing so, as it would not be prudent for any organization to trade on its capital for more than its own worth, or for that matter keep every single risk for its net account. This makes it imperative to reinsure a single risk or its portfolio. Thus, reinsurance gives protection against eventualities and
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“RE-INSURANCE ” supplements the need of insurance companies by limiting their loss from any single incident or accumulation of losses arising out of any event. Reinsurance can help stabilize profits for direct writing companies. By limiting the maximum size of losses for which the direct writing company is responsible, great fluctuations in profits are minimized. Reinsurance also provides considerable protection to the ceding company against catastrophic losses caused by natural disasters such as earthquakes and hurricanes and by human-made disasters such as oil pollution. Without reinsurance, the impact of such catastrophic losses might be greater than the primary could absorb. Reinsurance can offer a form of financing for primary companies. This commission offsets some of the direct writing company’s expenses, thus minimizing the cash flow drain associated with writing new business. Finally, reinsurers often provide advice and assistance to primary insurers on underwriting procedures and in claims handling.
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“RE-INSURANCE ”
REINSURANCE
Risk is the starting point of insurance. In a situation large number of similar loss exposures, where there is possibility of loss to a few & at the same time there is an element of uncertainty of loss with respect to date, time & quantum, insurance acts as one of the risk management techniques . Reinsurance is insurance for insurance companies. Many insurers around the world purchase reinsurance primarily to reduce their exposure to the risks they have under written in order to provide better protection to their clients. Any risk or exposures that can be insured can also be reinsured. Reinsurance is concern with spreading of risk which are too big to borne by primary insurers. Large risks arise not solely through enormous value of buildings, property, factories, ships and aircrafts but also through aggregation of risks. These indigestible major risk get passed on to reinsures from primary insurers.
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“RE-INSURANCE ”
FEATURES OF REINSURANCE
(1)
Spreading of risk
-:
Reinsurance is like insurance which is practiced by the insurers to spread their loss.
(2)
Principal of reinsurance –: Reinsurance contract is made on the same principles which
governed the original contract of insurance.
(3)
Extent of risk -: An original insurer has insurable interest to the extent if the risk undertaken by him.
(4)
Termination -: Reinsurance can be terminated when the original insurance lapsed for any reason.
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“RE-INSURANCE ”
(5)
Recovery of loss -: In the event of loss, the original insurer has to pay the
assured sum first to the insured . then he will recover from the rein surer the reinsures are discharged.
(6)
Liability of insurer -: The rein surer is not liable to the original insurer in the event of loss.
(7)
Discharge of contract -: In the absence of privity of contract between the original party who has insured his subject matter and the reinsurer, the reinsurers are discharged.
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“RE-INSURANCE ”
IMPORTANT TERMS IN REINSURANCE
(1)
Direct insurer : The insurer who accepts the risk from the prosper and
who, so far as the policyholder is concerned , is alone responsible for the obligation
(2)
Rein surer : The insurer who grants a guarantee from the direct insurer.
(3)
Ceding insurer : The insurer who obtains a grantee ( or places a reinsurance)
(4)
Reinsurance policy :
The contract of reinsurance except in fire practice where it is termed as guarantee, or guarantee policy.
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“RE-INSURANCE ”
(5)
Retention or holding The proportion of the risk which the direct insurer holds on his
own account.
(6)
Line : The amount of the retention of the direct insurers, reinsurance
may accept one or more lines (or a fraction of a line).
(7)
Retrocession-: A reinsurance of a reinsurance i.e. where the reinsurance
desire to reduce the limit of his liability in respect of business accepted.
(8)
Reinsurance commission-: The amount paid by reinsurer to the ceding company as a
contribution to a acquisition an administration costs. It is calculated as a % of the premium received by reinsurer.
(9)
Profit commission -: It is a % of the earned profit reached the reinsurer agrees to
return the because the profit earned on business passing under a reinsurance treaty is deemed to be due to skill and care in the conduct of the business by the direct insurer.
(10)
Underwriter : the person who agree to compensation the loss arising from
the risk is called the insurer, as surer or underwriter.
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“RE-INSURANCE ”
NEEDS,UTILITY & METHODOLOGY
Reinsurance is a mechanism which insurance companies used to spread the risk assumed. Reinsurance absorbs & distributes the effect of the insurance industry’s losses so that no single company is over burdened with the financial responsilibility of offering coverage to its policy holders without reinsurance, or though in adequate reinsurance support, unexpected CATASTROPHES, unanticipated liabilities or a series of large losses could push an insurer into insolvency. Through reinsurance, the industries losses are absorbed & distributed among the a group of companies. Catastrophes unexpected liabilities and a series of large losses that might be too much for an individual insurer to absorb could be better handled through reinsurance. Without it, most insurance would be able to cover only the safest of ventures, leaving many moderately risky but worthwhile ventures without a cover. Reinsurance is the technical way to optimize the risk port folio of an insurance company in purchasing reinsurance, insurers seek to improve their financial performance, security &stability over time. Basically, from the direct underwriters point of view,
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“RE-INSURANCE ”
Following could be the important functions of REINSURANCE
Capacity: reinsurance provides flexibility for insurers in the size & types of risk & the volume of the business, companies could underwrite. Reinsurers assist in the financing of insurance operation, being used as an alternative to increasing primary insurers capitalization. Expertise: reinsurers supply reinsurance to insurers in specialized areas where the insurers may have little or no expertise. This could be true especially in case writing certain risks for the first time. Stability: properly structured reinsurance arrangement provides different classes of insurance assist insurers by limiting wide fluctuation in underwriting results. Protection: associated with stability, reinsurance provides protection against the large losses, accumulations that can results from catastrophic events such as earthquakes and cyclones.
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“RE-INSURANCE ”
Reinsurers offer a wide range of traditional and alternative treaty forms for the assumption of risks of primary insurers. Traditional treaty reinsurance is used to reinsurance precisely defined portfolio. In facultative reinsurance it is mainly large scale risks that don’t fit in the treaty portfolio which are individually evaluated and reinsured. In proportional treaties, reinsurers assumes the same proportion of liability, premiums and losses for each reinsured risk. In non proportional reinsurance, reinsurer grants cover for those claims that exceed a certain fix amount but are still below a defined upper limit. Reinsurance offers various ranges of facilities to the holders’ of policies. Solvency is the important criterion for assessing an insurance company and its performance and adequacy of reserves is vast step of safeguarding of insurance business. Reinsurance constitutes an integral part of the insurance activity. The development of local insurance market with the international industry is also associated by the services provided by the reinsurance brokers in the insurance business.
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“RE-INSURANCE ”
PRINCIPALS OF REINSURANCE
Reinsurance contract basically depends upon two principles: (1)_ Principle of Utmost Good Faith - Reinsurers maintain utmost faith in underwriters of their company. These underwriters, in turn, maintain utmost good faith in the underwriters of the primary insurance company. (2) Principle of Indemnity - The principle of indemnity of the insured risk applies automatically on reinsurance. A reinsurer automatically follows the legal and technical features of the reinsured in writing and underwriting a risk. The Insurer Must Retain a Part of the Risk Before Reinsuring. Though there cannot be the reinsurance of the complete risk, there can be a complete retention of risk. Those risks that are within the retention capacity of an insurer must be retained completely.
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“RE-INSURANCE ”
PROFILE
Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Individuals and corporations obtain insurance policies to provide protection for various risks (hurricanes, earthquakes, lawsuits, collisions, sickness and death, etc.). Reinsurers, in turn, provide insurance to insurance companies. The reinsurance dose not affect the position of the original insured. The insured to pay reinsurance premium for the risk to the insurer. The financial strength of insurance company it would not be prudent for any organization to trade on its capital for more than its own worth, or for that matter keep every single risk for its net amount. The reinsurance gives protection to insurance companies & minimized the risk of business .
TYPES OF REINSURANCE
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Type of REINSURANCE Proportional reinsurance Quota method Share plus method Non proportional proportionalreinsurrrance Excess loss method Pool loss Method Treaty Reinsurance METHODmethod
Proportional reinsurance Quota method of reinsurance Share plus method of reinsurance
Non proportional reinsurance * Excess loss method * Pool loss method * Treaty method
PROPORTIONAL
Proportional reinsurance (the types of which are quota share & surplus reinsurance) involves one or more reinsurers taking a stated percent share of each policy that an insurer produces ("writes"). This means that the reinsurer will receive that stated percentage of each dollar of premiums and will pay that percentage of each dollar of losses. Premiums and losses are then shared on a pro rata basis. For example, an insurance company might purchase a 50% quota share treaty.
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“RE-INSURANCE ” The maximum underwriting capacity of the cadent would be $ 1,000,000 in this example. Surplus treaties are also known as variable quota shares. Under this method, the amount retained And the amount ceded will represent the fixed share of risk covered by the direct insurer, which places reinsurance with reinsurance company. Irrespective Of the size of the claim , the liability of of the claims Will be shared by the ceding office and the rein surer within treaty.
The methods of proportional reinsurance are as follow-:
(1)
Quota method of reinsurance Share plus method of reinsurance
(a) Quota method of reinsurance -:
(2)
under this method, the ceding office is bound to reinsure such proportion of every risk as stated in the agreement. These methods of reinsurance s are used where the company is new in market. This method is very much useful to rein surer.
(b) Share plus method of reinsurance-: 14
“RE-INSURANCE ”
under this method , treaty refers to reinsurance, the surplus of a risk over the retention of the ceding office. The treaty would mention an amount as the ceding office maximum retention as also the scope of business. When a risk is insured the ceding office has a free choice, within the liability in treaty.
Proportional reinsurance Non proportional reinsurance Non-proportional
Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority." An example of this form of reinsurance is where the insurer is prepared to accept a loss of $1 million for any loss which may occur and they purchase a layer of reinsurance of $4 million in excess of $1 million The main forms of non-proportional reinsurance are excess of loss and stop loss.
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“RE-INSURANCE ” Excess of loss reinsurance can have three forms - "Per Risk XL" (Working XL), "Per Occurrence or Per Event XL" (Catastrophe or Cat XL), catastrophe excess of loss, the cadet’s per risk retention is usually less than the cat reinsurance retention (this is not important as these contracts usually contain a 2 risk warranty i.e. they are designed to protect the reinsured against loss covers are then known as "Stop Loss" or annual aggregate XL. in these form of cover the ceding office and the reinsurer do not share some loss at all. the ceding office will underwrite its rentention as aform of first loss insurance i.e it will bear all losses up to certain amount of reinsurance. the premium under this will be quoted by the reinsurer as a % of total premium received by the ceding co.
(1)
Excess loss method-:
This another method of reinsurance which is sometime used. this medthod assumes that an insurer decides the maximum under a treaty whrerby the reinsurer will be responsible for the amount of loss and above the amount retained by the direct insurer. (2) Pool method of reinsurance -: This method provides against risks of insurer event may involve heavy loss, damage. the member co acept to pool together all their business to a leading office and the payment is made by this leading office.
(3) Treaty method of reinsurance -: Treaty is reffered to an agreement between the ceding office and a reinsurer or a number of reinsdures, whrerby the reinsurers is bound to accept a fixed share of risk coming within the scope of the agreement.
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“RE-INSURANCE ”
Risk-attaching Basis
A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage for the whole policy period when written. All claims from cadent underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from decant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.
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LOSS OCCURING BASIS
A Reinsurance treaty from under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered. As opposed to claims-made policy. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for most policies.
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“RE-INSURANCE ”
CLAIMS MADE BASIS
A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred.
CONTRACT OF REINSURANCE
Most of the above examples concern reinsurance contracts that cover more than one policy (treaty). Reinsurance can also be purchased on a per policy basis, in which case it is known as facultative reinsurance. Facultative reinsurance can be written on either a quota share or excess of loss basis. Facultative reinsurance is commonly used for large or unusual risks that do not fit within standard reinsurance treaties due to their exclusions. The term of a facultative agreement coincides with the term of the policy.
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“RE-INSURANCE ” Facultative reinsurance is usually purchased by the insurance underwriter who underwrote the original insurance policy in the insurance company.
RISK TRANSFER
The main use of any insurer that might practice reinsurance is to allow the company to assume greater individual risks than its size would otherwise allow, and to protect a company against losses. Reinsurance allows an insurance company to offer higher limits of protection to a policyholder than its own assets would allow. For example, if the principal insurance company can write only $10 million in limits on any given policy, it can reinsure (or cede) the amount of the limits in excess of $10 million.
Reinsurance’s highly refined uses in recent years include applications where reinsurance was used as part of a carefully planned hedge strategy.
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“RE-INSURANCE ”
INCOME SMOOTHING
Reinsurance can help to make an insurance company’s results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage.
SURPLUS RELIEF
An insurance company's writings are limited by its balance sheet (this test is known as the solvency margin). When that limit is reached, an insurer can either stop writing new business, increase its capital or buy "surplus relief" reinsurance. The latter is usually done on a quota share basis and is an efficient way of not having to turn clients away or raise additional capital.
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“RE-INSURANCE ”
ARBITRAGE
The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than what they charge the insured for the underlying risk.
REINSURERS EXPERTISE
The insurance company may want to avail of the expertise of a reinsurer in regard to a specific (specialized) risk or want to avail of their rating ability in odd risks.
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“RE-INSURANCE ”
HOW REINSURANCE CREATES VALUE TO PRIMARY INSURERS?
Reinsurance benefits primary insurers in following ways: Reduced volatility of underwriting results . Capital relief and flexible financing . Excess to measurer’s expertise and services, especially in the fields of
product development, pricing and underwriting and claim management. The reinsurance value is considered too great extent to get a part reinsured with another insurance company.
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“RE-INSURANCE ”
THE ABOVE BENEFITS VARY IN FOCUS FOR LIFE AND NON-LIFE INSURANCE. ROLE OF REINSURANCE IN-:
(1) (2)
Life insurance Non life insurance
NON LIFE INSURANCE
Non-life insurance buys reinsurance to protect its capital base against large deviations from expected loses. This is most essential in case of catastrophic losses. Reinsurance allows non-life insurers to accept more business with the same amount of capital. By buying reinsurance coverage, insurers transfer risk to reinsurers and do not allocate capital for these risks. Thus primary insurer can spread their overhead cost of distribution network, administration and claim handling over a broad base of business and thereby benefit from economies of scale.
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“RE-INSURANCE ” Reinsurers play a key role in the assessment and underwriting of risk. They also ensure the continuous supply of insurance coverage to companies in the time of market distress.
LIFE INSURANCE
Life insurers buy reinsurance to minimize the potentially negative impact of large risks. Life insurers want to limit their exposure to high sum assured for individual risks or to avoid an accumulation of mortality risk in case of group cover schemes. Moreover, long term reinsurance contracts protect insurers against claims variations, for instance, variations in mortality over time. One of the major reasons for entering into reinsurance contract is that reinsurers provide expertise in underwriting and claim management as well as on pricing and product development.
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“RE-INSURANCE ” Reinsurers' broad expertise also helps insurers in product development and pricing of new products. Insurers can refine risk into broader classes and can minimize their exposure with the help of innovative products. Since they mainly focus on savings and investment business, life reinsurer allows them to transfer some proportion of mortality and disability risk component.
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“RE-INSURANCE ”
REINSURANCE AS A RISK MANAGEMENT TOOL
Reinsurance is used by primary insurers as an effective risk management tool. Primary insurers can use different types of reinsurance products to meet their need of balance sheet protection and capital relief. They draw their reinsurance plan by using all forms and types of reinsurance contracts. The primary insurers use some techniques to transfer their risk to reinsurers and also to analyse what type of contract will be suitable for them according to their risk portfolio or the policies underwritten by them and the terms and conditions mentioned therein. Based on its business needs, an insurer negotiates with reinsurer, directly or through a broker, to determine the terms, conditions and costs of a reinsurance contract.
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“RE-INSURANCE ”
TRADITIONAL TECHNIQUES USED BY PRIMARY INSURERS
There are basically two types of reinsurance agreements: -
• Treaty • Facultative
TREATY
Reinsurance Treaties automatically cover all risks written by the insured that fall within their terms, unless they specifically exclude exposures. It does not require to review individual risks, but there should be a careful review of underwriting philosophy, practice, historical experience of the primary insurance company, its attitude towards claim management and engineering control, management's general background, expertise and planned objectives.
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Treaties are of two types - Proportional and Non-Proportional.
NON PROPORTIOANL TREATY
In this type of treaty, reinsurance cover begins once the amount of the claim exceeds a pre-determined amount. For example, in a contractual language, it is termed as, treaty of Rs. 600 Corers in excess of Rs. 100 Corers, i.e., a Rs. 700 Crores cover with a deductible of Rs. 100 Crores. Premiums under the non proportional treaty will be separately quoted by the rein surer as the total percentage of premium received by the ceding company for the concerned class of business.
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PROPORTIONAL TRAETY
(A)
In this type of treaty, the reinsure and the ceding company share the
premium proportionally. For example, as per the agreement, if the proportionate share of the INSURANCE BUSINESS. (B) Premium between both the parties (ceding insurer and reinsurer) is 40% and 60% respectively, then in case of total loss of Rs. 100 Corers, primary insurer will pay Rs. 40 Crores and the reinsurer the remaining Rs. 60 Crores (C) Each year insurance companies provide their reinsurers with information on intended policies concerning maximum exposures, estimated premium income, classes of business, marketing strategies, etc.
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FACULTATIVE
Facultative reinsurance contracts cover individual policies and are written on an individual basis. This agreement covers specific risks and requires substantial personnel and technical resources for underwriting individual risk. Since there is a potential loss in these types of agreement, reinsurer must possess necessary knowledge to calculate each risk accurately. These contracts are also used to supplement treaty arrangements, when treaties don't cover any specific risk or exclude that risk. Separate facultative can be used to cover this by entering into agreement with another reinsurer.
RETROCESSION
Sometimes reinsurer also may not be able to cover full exposure as per agreements so he again buys its own reinsurance known as retrocessions,to stabilize results and fulfills risk-spreading objectives of reinsurance transactions. Reinsurance agreements range from simple to complex. An insurer may purchase reinsurance cover from a single reinsurer or it can cover the same risk by reinsuring it with many reinsurers. This process is known as Layering. It is again one of the risk management tools of primary insurers.
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NON TRADITIONAL TECHNIQUES
From past few years, some new risk transfer techniques have been used known as "Alternative Risk Transfer" Techniques like finite reinsurance for both life and non-life reinsurance and multi-year, multi-risk property / casualty contracts. Finite contracts contain major profit (loss) sharing elements, which limit the risk transfer to the reinsurer. Under multi-year, multi-risk property / casualty contracts, reinsurers commit to pay only if the total losses for several different risks over an extended period (often three years) exceed a fairly high threshold. Premiums for these contracts are low, because they are designed to cover only that low frequency, high severity cumulative losses that are unbearable by primary insurers.
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“RE-INSURANCE ”
REINSURANCEN IN INDIAN PERSPECTIVE
(1)
After the nationalization of insurance business, General Insurance
Corporations (GIC) of India was made responsible for reinsurance protection. It has been providing its SERVICES TO INSURERS. (2) Services to the Indian market for the last 30 years. It has developed necessary skills and has qualified manpower to take care of the growing needs of the expanding Indian industry. It mainly covers only non-life insurance but now it has also started its business in life insurance sector. (3) As per the apex regulatory body IRDA (Insurance Regulatory & Development Authority of India), currently the domestic non-life insurance companies, both public and private, need to cede 20% of their business with GIC compulsorily. This limit will further be reduced to 10% from April 2008. (4) 75% of the GIC's premium income comes from within the country.
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“RE-INSURANCE ” (5) The government may allow foreign reinsurance companies to set up branch offices in the country with certain regulatory restrictions. At present, foreign reinsurers are already allowed to set-up representative offices in the country. (6) Finance Ministry is considering relaxation in present FDI limit of 26% in relation to reinsurance companies. This will definitely improve the position for Indian partners as presently they have to bear remaining 74% against set capital requirement of Rs. 200 Crores. (7) Private sector companies backed by reinsurers will definitely get benefit, if deregulated environment as their retention capacity will improve and they will be able to sustain greater risk exposure. (8) Swiss Re, one of the largest reinsurance companies in the world, is planning to enter the health reinsurance business in India. It will provide advisory services on product design and development, pricing, and also offer its underwriting services.
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MAIN CHALLENGES
1) 2) 3) 4)
Adequate pricing for reinsurance products. Reinsurance should provide for terrorism risk. It should also provide for cyber terrorism. One of the major challenges is to evolve a system to capture risk accumulation and catastrophic exposure data. Managing reinsurance in electronic form. Reinsurance companies have to be in pace with ever-evolving business and legal environment. Low interest rates and decelerating economic growth.
5) 6)
7)
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“RE-INSURANCE ”
REGULTATORY FREMWORK IN REINSURANCE
1) Every insurer should retain risk proportionate to its financial capability and business volumes. 2) Insurers are also required to assure certain percentage of each policy to be reinsured with the national reinsurer. It is mandatory for non-life insurance business. 3) Reinsurance contract are required to be revised every year and all disclosures should be submitted to the IRDA forty-five days before the start of the financial year. 4) Private life insurance companies are not allowed to enter into reinsurance contract with their promoter company or its associates, only LIC can reinsure its policies with GIC. 5) These regulations aim to expand the retention within India, provide the best protection and to simplify the administration.
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“RE-INSURANCE ”
(6) The placement of reinsurance business from be Indian market is governed by reinsurance regulation by IRDA. (7) The objective of the regulation is to maximize the retention of premium within the country. (8) Placement of 20% of each policy with national re subject to a monetary limit for each classes. (9) Inter-company cession between four public sector company. (10) The treaty and balance risk after automatic capacity are to be first offered to insurance co in the market before offering to reinsures.
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“RE-INSURANCE ”
LIST OF REINSURANCE COMPANIES
Company
Net premium $
Munich re Swiss re Hanover re Scor re Everest re Partner re
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24,218 23,202 8,907 6,948 3,875 3,689
“RE-INSURANCE ”
Case Study On Swiss Reinsurance Company
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“RE-INSURANCE ”
INTRODUCTION
Swiss Re (Schweizerische Rückversicherungs-Gesellschaft AG, SIX: RUKN) is the world’s second largest reinsurer, after having acquired GE Insurance Solutions. Founded in 1863, Swiss Re operates through offices in more than 25 countries. General Electric owns 8.9% of the firmSRE (formerly Luxembourg European Reinsurance S.A.) is a subsidiary of Swiss Reinsurance Company which will gradually assume the assets, liabilities and ongoing business of Swiss Re' s various reinsurance subsidiaries domiciled in Europe, including reinsurance business written directly by the parent company through branches in Italy, Germany and France.
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“RE-INSURANCE ”
HISTORY
The Swiss Reinsurance Company of Zurich was founded on December 19, 1863 by the Helvetia General Insurance Company (now using the trade name of Helvetia insurance) in St. Gallen, the Schweizerische Kreditanstalt (Credit Suisse) in Zurich and the Basler Handelsbank (predecessor of UBS AG) bank in Basel. Like the fire of Hamburg in 1842 (which led to the foundation of the first professional reinsurers in Germany, the great fire of Glares in 1861 showed that insurance coverage was totally inadequate in Switzerland in the event of such a catastrophe. Hence the need to provide more effective means of coping with the risks posed by such devastation.
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“RE-INSURANCE ” On 10/11 May 1861, more than 500 houses went up in flames in the town of Glarus. Two thirds of the town sank into rubble and ashes; around 3000 inhabitants are made homeless. The company’s articles of association were approved by the government of the Canton of Zurich on 19 December 1863. The foundation capital, which was 15% paid up, amounted to 6 million Swiss francs. The Swiss Reinsurance Company was the lead insurer of the World Trade Center during September 11 attacks which led to an insurance dispute with the owner, Silverstein Properties.
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“RE-INSURANCE ”
CORPORATE HEADQUARTER
Swiss Re is headquartered in Zurich where the parent company’s main premises has stood on the shores of Lake Zurich since 1864. On 31 October 2008, Swiss Re completed GBP 762 million acquisition of Barclays PLC's Barclays Life Assurance Company Ltd.
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LONDON HEADQUARTER
Its new London headquarters are located in the award-winning 30 St Mary Axe tower, which opened on May 25, 2004. 30 St Mary Axe is London's first environmentally sustainable tall building. Among the building's most distinctive features are its windows, which open to allow natural ventilation to supplement the mechanical systems for a good part of the year. The landmark London skyscraper, designed by architect Norman Foster and popularly known as 'the gherkin’, was confirmed sold on February 5, 2007 .
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SWISS REINSURANCE COMPANY KEY DATA
(1) Country -: (2) Major industry -: (3) (4) (5) (6) (7) (8) (9) (10) Sub industry -: Employees -:
Switzerland Financial Insurance company 11,560 6,726,696,145 346,542,208 915,375 U.S DOLLAR OTC Namenekie
Market capital -: Share outstanding -: Closely held Currency Exchange Share type -: -: -: -:
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HIGHLIGHT
1) Swiss Re' has a diversified business mix, which is evident from the premiums earned in 2006. 2) In 2006, 61% of group gross premiums earned were from the non-life business and 39% from life and health.
3) Non-life gross premiums earned in 2006, 35% was property business,
26% liability, 11% motor, and 28% other lines. 4) The group acquired GE Insurance Solutions (GEIS), which was the fifth largest reinsurer, worldwide, at the time of the acquisition, in June 2006. 5) This acquisition made Swiss Re the world's largest and most diversified reinsurer. The GEIS acquisition is expected to generate cost synergies of at least $300 million per year.
6) Swiss Re displaced Munich Re for the top position in AM Best's
2007 ranking of the top 35 global reinsurance groups, based on 2006 gross premium written.
7) Swiss Reinsurance Company (Swiss Re or 'the group') is the world's
largest rein surer. This profile offers a comprehensive review of Swiss Re's operations and performance.
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“RE-INSURANCE ”
SUBSIDIARIES
Broker dealer Swiss Re Capital Markets (SRCM), is a broker-dealer and leading underwriter and developer in the insurance-linked securities market. Since 1997 SRCM has underwritten over USD 15 billion of ILS including Insurance-Linked Bonds (ILBs) also known as Catastrophe Bonds (Cat Bonds) for third-party clients and its parent, Swiss Re. Swiss Re Capital Markets has developed new security types such as earthquake bonds. Swiss Re Capital Markets also developed the parametric index trigger, the ILS shelf program, the first ILS synthetic CDO, and the first extreme mortality bond (linked to life risk).
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VISION
A.
To be the no. 1 company in the global world. maintained the corporate image to increase the market share .
B. To provide best quality of products & services to create &
C.
To increase the productivity of company.
D. To maintained the profitability of the company. E. To maintained the integrity & honesty of venture. F. To maintained the harmonious relationship with the employee &
management of business.
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“RE-INSURANCE ”
PROFILE
Swiss Reinsurance Company is a Swiss global company focused on reinsurance products and financial services solutions to manage capital and risk. The company was established in 1863 after the great fire in the town of Glarus revealed the inadequacies of the insurance coverage in Switzerland. The objective was to provide more effective means of coping with the risks posed by a catastrophe Today Swiss Reinsurance Company has grown and expanded to become the world’s largest reinsurer covering a wide range of risks from life to liability. Swiss Reinsurance Company is a Fortune 500 company.
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ACTIVITIES
Property and Casualty Reinsurance Industry Reinsurance Specialties Reinsurance Commercial Insurance Life Insurance Health Insurance co.
•
Financial Services Asset Management Capital Management and Advisory Credit Solutions Fund Management Private Equity Fund of Funds Run Off Real Estate Office Space for Rent Apartment for Rent Property for Sale Acquisition e-Business Life and Health Swiss Reportal Client Services Property and Casualty
•
•
Swiss Reinsurance’s net income in FY 2006 was CHF 4,560 million which was 97.91 % more than what it was in the fiscal before business if reinsurance .
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“RE-INSURANCE ” Swiss Reinsurance is headed by Mr. Jacques Aigrain who is the CEO of the company Swiss Reinsurance employs over 9,000 people in organization.
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Case study on General Insurance Corporation Of India
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LIST OF GENERAL INSURANCE COMPANIES IN INDIA
A. B. C. D. E. F. G. H. I.
General Insurance Corporation Of India United India Fire & General Icici Lombard General Insurance Company Iffco-Tokio General Insurance Co Ltd Bajaj Allianz General Insurance Company Limited Bajaj Allianz General Insurance Tata Aig General Insurance Co. Limited Hdfc Chubb Gen Insurance Company Limited Hdfc Chubb General Insurance Company
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INTRODUCTION
The General Insurance Corporation of India was incorporated in the year 1972 under the company's act 1956 as a private company. In November 2000, the company was approved as the "Indian Reinsurer". Since then the General Insurance Corporation of India has been providing reinsurance supports to public sector as well as to other private general Insurance Companies. The efbrfective reinsurance practices adopted by the corporation has led it to be accepted globally. Presently it holds business particularly the reinsurance programme with the companies in Maldives, Kenya, Malaysia, Mauritius, Middle East, Africa and Sri Lanka. As to the statistics, during the year 2003-04, the net premium income of the Corporation has grown to Rs 4,162.98 crore in comparison to Rs 3832.79 crore in the previous year. The total asset of the corporation has reached at Rs 16,441.13 crore as on 31 March 2006.
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“RE-INSURANCE ” Besides reinsurance business, the corporation has participated in the share capital of Kenindia insurance company Ltd.
Public Sector General Insurance Companies In India
The four public sector general insurance companies in India are as follows:
• • • •
National Insurance Company. New India Assurance Company Ltd. Oriental Insurance Company Ltd. United India Insurance Company Ltd
The above four general insurance companies in India de-linked from the general insurance company in the year 2000. As to the statistics, the gross premium of the above four companies have reached at Rs 14,285 crore in 2003-04. General insurance is also treated as reinsurance in India. General Insurance Corporation of India (GIC Re) is the sole Reinsurance company in the domestic reinsurance market in India .
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“RE-INSURANCE ”
PROFILE
General Insurance Corporation of India (GIC Re) is the sole Reinsurance company in the domestic reinsurance market in India with more than three decades of experience in the Re-Insurance business. GIC has its registered office and headquarters in Mumbai.. The next landmark happened on 19 April 2000, when the Insurance Regulatory and Development Authority Act, 1999 (IRDAA) came into force. This act also introduced an amendment to GIBNA and the Insurance Act, 1938. An amendment to GIBNA removed the exclusive privilege of GIC and its subsidiaries for carrying on general insurance in India.
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HISTORY
The entire general insurance business in India was nationalised by the General Insurance Business (Nationalisation) Act, 1972 (GIBNA). The Government of India (GOI), through Nationalisation took over the shares of 55 Indian insurance companies and the undertakings of 52 insurers carrying on general insurance business. General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of GIBNA. It was incorporated on 22 November 1972 under the Companies Act, 1956 as a private company limited by shares. GIC was formed for the purpose of superintending, controlling and carrying on the business of general insurance. As soon as GIC was formed, GOI transferred all the shares it held in the general insurance companies to GIC. Simultaneously, the nationalised undertakings were transferred to Indian insurance companies. After a process of mergers among Indian insurance companies, four companies
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“RE-INSURANCE ” were left as fully owned subsidiary companies of GIC (1) National Insurance Company Limited, (2) The New India Assurance Company Limited, (3) The Oriental Insurance Company Limited, and (4) United India Insurance Company Limited. In November 2000, GIC was renotified as the Indian Reinsurer and through administrative instruction, its supervisory role over subsidiaries was ended. With the General Insurance Business (Nationalisation) Amendment Act 2002 (40 of 2002) coming into force from March 21, 2003 GIC ceased to be a holding company of its subsidiaries. Their ownership was vested with the Government of India.
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THE MISSION OF GIC
1) To provide need-based and low cost general insurance covers to the
rural
population keeping in mind their low premium paying
capacity
2) To administer a crop insurance scheme for the benefit of farmer
3) To develop and introduce covers with social security benefits.
4) To develop a marketing network throughout the country including
areas with low premium potential OF Business.
5) Promote balanced regional development irrespective of cost
considerations and make the benefits of insurance available to the masses.
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BUSINESS OF GENERAL INSURANCE
(1) The Corporation does not write any direct insurance business
except the Aviation insurance business of Air India, Indian Airlines, Hindustan Aeronautics and Crop Insurance. (2) It receives by way of reinsurance 20% of all the direct business written in India by the Subsidiaries. (3) GIC and its subsidiaries function through a network of 4167 offices spread across the length and breadth of the country. (4) Agents, Development Officers and Employees at Branch, Divisional and Regional Offices, of the four subsidiaries, form the customer interface . (5) GIC and its subsidiaries have a total workforce of around 85,000.The General Insurance Corporation has a consistent profit and dividend paying record accompanied by a steady growth in its financial resources. (6) Through investments in the Govt. sector and socially oriented sectors, GIC has contributed to the nation's development. It is one of the largest Financial Institutions in the country. (7) The other ventures initiated by GIC are GIC Mutual Fund and GIC Housing Finance.
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“RE-INSURANCE ” (8) Growing at the annual average rate of 17%, GIC's Net Premium Income stood at Rs. 1710.26 crores as at 31st March 1999. Total Investments of the corporation as at 31st March 1999 amounted to Rs.4556.15 crores.
(9) The Capital and Funds of the Corporation stood at Rs. 2914.64
crores as at 31st March 1999.
(10) The Government of India has also entrusted the Corporation with the administration of various schemes for social amelioration and public welfare.
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Management of General Insurance Corporation
Chairman Cum Managing Director Mr. Yogesh Lohiya
Board Of Directors
Mr. Tarun Bajaj Mr. O.P Bhatt Mr. M.Ramdas MR.M.V Gowada Mr. Kamlesh .S. Vikamsey
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TYPES OF QUESTIONS REGARDING REINSURANCE What is Reinsurance?
Ans- : Reinsurance is the passing of risk from a "front writing" insurance company to a reinsurance company. The front writing insurer earns a fee for issuing the insurance and for administration of the product and claims. The net premium is ceded to a producer-owned reinsurance company. This premium earns investment income. After claims are paid this reinsurance company may recognize a net underwriting profit on top of the investment income. (2) Who Can Own a Reinsurance Company? Reinsurance companies can be held by individuals, corporations or trusts.
(3) What Products Can Be Written into a Reinsurance Company?
Today car dealers are reinsuring extended service contracts, GAP protection, maintenance plans, loyalty points, appearance protection packages, theft protection, limited warranties and more. This list of reinsurable products continues to grow.
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(4)
What about Taxes?
There is no way to avoid taxes entirely but your reinsurance company can grow in a tax deferred environment. You may be able to manage the type of tax and the event of taxation to best meet your needs. It is always important to first consult a professional tax advisor.
(5) Why wouldn’t dealers reinsure their products?
Ans-: In the past there were few common reasons dealers didn't reinsure. a. Most of all dealers simply were not aware reinsurance was an option, even though it has been available for over 25 years. b. Today more and more dealers qualify for reinsurance. (6) What are the risks? Ans -: There is no guaranteed return for a producer-owned reinsurance company, but with proper structure in place the downside risk is limited to the initial capital contribution, typically $3,500 to $8,000.
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“RE-INSURANCE ” (7) Is this self Insurance? Ans- : No, this is one of the most common misconceptions about reinsurance. Our programs are fully insured by highly rated nationally recognized companies. You are not creating contingent liabilities or putting your business at risk. (8) What exactly does a reinsurer do? Ans- : Reinsurers take on part of the risk that insurers assume from their
private or commercial clients. Insurers need reinsurance because some losses would just be too expensive for them to carry on their own. Reinsurance is not just sought for large risks like power plants, but also for smaller risks such as roof damage to houses. A reinsurer therefore assumes individual risks or assumes risks en bloc, i.e. it accepts a share in a large number of individual risks.
(9) What is the purpose of business?
Purose of reinsurance is to share the load among several carriers. In the event of a claim, the reinsurer pays its share of the loss to the primary insurer. For this service, the reinsurer is paid a share of the insurance premium in accordance with its level of participation in the risks.
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“RE-INSURANCE ” (10) Expertise for the future is part of our business? As reinsurers we have to anticipate changes and make reliable predictions of future developments in order to make reliable and valid risk assessments. Munich Re is therefore actively involved in a whole range of research fields and performs important work in the investigation of loss causes.
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BIBLIOGRAPHY
• REINSURANCE BOOK
• INSURANCE BOOK
• SCENARIO OF INSURANCE
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WEBLIOGRAPHY
WWW.GOOGLE.COM
WWW.REINSURANCE.COM
WWW.INSURANCE.COM
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CONCLUSION
AFTER GOING THROUGH THE ENTIRE PROJECT I CAME TO CONCLUSION THAT
THE REINSURANCE PLAYS A VITAL ROLE IN PROTECTING THE ENVIORNMENT OF COMPANY
& MAINTAING THE FINANCIAL STRENGTH OF COMPANY. IT IS
CONCERNED WITH SPREADING OF RISK IN BUSINESS. IT ALSO PROTECTING THE CEDING COMPANY BY MINIMISING THE BARRIERS OF INSURANCE.
THERE ARE MANY COMPANIES FOLLOWING THE REINSURANCE TECNIQUES TO STABILISE THE POSITION OF INSURANCE BUSINESS.
It insures the every aspect of insurance & eventualities of business. The reinsurance also offers the financing from primary insurance company.
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