Re Insurance
Content
Reinsurance
DEMYSTIFYING THE WORLD OF REINSURANCE
Size of Risk
Reinsurer
Insurer
Insured
Policies
REINSURANCE
• “Reinsurance is a contract of insurance whereby one insurer (called the reinsurer or assuming company) agrees, for a portion of the premium, to indemnify another insurer (called the reinsured or ceding company) for losses paid by the latter under insurance policies issued to its policyholders.”
THE REINSURANCE MARKET
INSURANCE COMPANIES
REINSURANCE COMPANIES
REINSURANCE BROKER
RETROCESSIONAIRES
Reinsurance
Reinsurance Company
Reinsurance Company
Broker, Direct.
Insurance Company
Broker, Direct.
Insured
Broker, Agent, Phone, Online, In person.
NEED FOR REINSURANCE Most risks, both natural and man-made, are insured and yet the likely losses are often beyond the capacity of any single insurance company or even insurance market.
Reinsurance is therefore the means by which Insurance Companies obtain the necessary protection.
NEED FOR REINSURANCE An Insurance Company would therefore buy Reinsurance : • • • • • To protect its Capital and its Shareholders To Stabilise its results from year to year by leveling claims fluctuations To increase its Capacity to handle larger and more complex risks of various classes To maintain any statutory minimum Solvency requirements and provide Security To Spread risks throughout world markets, not just locally, to lessen financial impact on any single economy Limit concentration of risk Take advantage of risk expertise of reinsurers who have grater experience of business (territory class)
• •
Reinsurance Transactions
Reinsurance is a contractual agreement under which the primary insurer transfers some or all of its loss exposures to a reinsurer. ? Reinsurer Retrocessionaire
Primary Insurer
ELEMENTS OF REINSURANCE
• Reinsurance is a form of Insurance. • There are only two parties to the reinsurance contract - the Reinsurer and the Reinsured - both of whom are empowered to insure.
ELEMENTS OF REINSURANCE
(continued)
• The subject matter of a reinsurance contract is the insurance liability the Reinsured has assumed under insurance policies issued to its own policyholders. • A reinsurance contract is an indemnity contract even in life and personal accident insurance, caused by insurance policy obligations.
What Reinsurance Does
• It redistributes the risk of loss which a reinsured incurs under the policies it issues according to its own needs. • It redistributes the premiums received by the reinsured according to its own needs.
What Reinsurance Does Not Do!
(continued)
• Convert an uninsurable risk into an insurable one. • Make loss either more or less likely to happen • Make loss either greater or lesser in magnitude • Convert “bad” business into “good business”
Reinsurance in india
• After nationalisation in 1972, General Insuarance Corporation became the Indian reinsurer. • The main objective was to maximise aggregate domestic retention of premium • To secure best terms consistent with the quality of business ceded • To minimise the drain of foreign exchange • However, Oil, satellites and financial risks have always been reinsured in the range of 90% or more
Reinsurance in india………
• Until GIC was notified as a National Reinsurer, • it was operating as a holding / parent company of the 4 public sector companies, controlling their reinsurance programmes. • GIC would receive 20% obligatory cession of each policy written in India.
Reinsurance in india…… • Since deregulation, GIC has assumed the role of the market’s only professional re-insurer. • In order to focus on reinsurance, both in India and through its overseas offices and trading partners, GIC has divested itself of any direct business that it wrote prior to November 2000, with the temporary exception of crop insurance. • It currently manages Hull Pool on behalf of the market, which receives a cession from writing companies and after a pool protection the business is retro-ceded back to the member companies.
General insurance corporation
DOMESTIC • As a sole reinsurer in the domestic reinsurance market, GIC provides reinsurance to the direct general insurance companies in the Indian market. • GIC receives statutory cession of 10% on each and every policy subject to certain limits. It leads many of domestic companies’ treaty programmes and facultative placements.
General insurance corporation……
INTERNATIONAL • A GIC is spreading its wings to emerge as an effective reinsurance solutions partner for the Afro-Asian region and has started leading the reinsurance programmes of several insurance companies in SAARC countries, South East Asia, Middle East and Africa. • To offer its international clientele an easy accessibility, efficient service and tailor made reinsurance solutions; GIC has opened liaison/representative/branch offices in London and Moscow.
Reinsurance market
• A feature of reinsurance market is that because of the way in which insurers and reinsurers operates a company may be trading simultaneously as both a buyer and a seller of reinsurance. • So the organization of reinsurance markets range from a group of local insurers placing all of their reinsurance with a local monopoly reinsurance corporation to something as complex as london reinsurance
Buyers of reinsurance
• • • • • • • Direct writing companies Captive insurance companies Reinsurers State owned insurance corporations State reinsurance corporation Underwriting pools Regional reinsurer pools and corporations
Types of Reinsurance
Types of Reinsurance
• Facultative Reinsurance
– Primary insurer and reinsurer negotiate a specific agreement for a particular risk/exposure. – Best suited for unique, large exposures. – High transaction costs.
Facultative Obligatory Treaty (Facultative +Treaty)
– The insurer cede risks of any agreed class which Reinsurer must accept if ceded
Types of Reinsurance ……..
• Treaty Reinsurance (agreement)
– Reinsurer is obligated to accept all business that falls within the terms of the treaty. – Lower transactions costs but greater potential for adverse selection. – Best suited for numerous, smaller exposures that are more similar. 1. Quota Share Treaty 2. Surplus Treaty
Quota Share Treaties- Proportional
• Primary insurer cedes a fixed, predetermined % of premium & losses on every risk it insurers within class(es) subject to treaty.
• Simple to rate & administer. • Does not stabilize underwriting results.
• Can help reduce reported expenses. • Can cede profitable business.
$100,000 Policy
$150,000 Policy
$50,000 Policy
25% 25%
75%
75%
25%
75%
Quota share treaty…….
• Every risk or policy is shared in the percentage agreed in terms of sum insured subject to a maximum limit and also the premium • Profitable to reinsurer as he participate in every risk or policy • It is costly to ceding insurer and so a short term arrangement or for new class of business • Good for new Insurer with less capital in relation to underwriting of insurance business
Surplus Share Treaties- Proportional
– Minimum limit of retention stated in $ or INR; % of premiums & losses ceded varies by policy. – Avoids cessions on small policies. – Better at providing large-line capacity. – More costly to administer. – Used on property risks, rarely liability. Example: $25,000 retention
$150,000 Policy
$100,000 Policy
17% 25%
75%
83%
DEMYSTIFYING THE WORLD OF REINSURANCE
Size of Risk
Reinsurer
Insurer
Insured
Policies
REINSURANCE
• “Reinsurance is a contract of insurance whereby one insurer (called the reinsurer or assuming company) agrees, for a portion of the premium, to indemnify another insurer (called the reinsured or ceding company) for losses paid by the latter under insurance policies issued to its policyholders.”
THE REINSURANCE MARKET
INSURANCE COMPANIES
REINSURANCE COMPANIES
REINSURANCE BROKER
RETROCESSIONAIRES
Reinsurance
Reinsurance Company
Reinsurance Company
Broker, Direct.
Insurance Company
Broker, Direct.
Insured
Broker, Agent, Phone, Online, In person.
NEED FOR REINSURANCE Most risks, both natural and man-made, are insured and yet the likely losses are often beyond the capacity of any single insurance company or even insurance market.
Reinsurance is therefore the means by which Insurance Companies obtain the necessary protection.
NEED FOR REINSURANCE An Insurance Company would therefore buy Reinsurance : • • • • • To protect its Capital and its Shareholders To Stabilise its results from year to year by leveling claims fluctuations To increase its Capacity to handle larger and more complex risks of various classes To maintain any statutory minimum Solvency requirements and provide Security To Spread risks throughout world markets, not just locally, to lessen financial impact on any single economy Limit concentration of risk Take advantage of risk expertise of reinsurers who have grater experience of business (territory class)
• •
Reinsurance Transactions
Reinsurance is a contractual agreement under which the primary insurer transfers some or all of its loss exposures to a reinsurer. ? Reinsurer Retrocessionaire
Primary Insurer
ELEMENTS OF REINSURANCE
• Reinsurance is a form of Insurance. • There are only two parties to the reinsurance contract - the Reinsurer and the Reinsured - both of whom are empowered to insure.
ELEMENTS OF REINSURANCE
(continued)
• The subject matter of a reinsurance contract is the insurance liability the Reinsured has assumed under insurance policies issued to its own policyholders. • A reinsurance contract is an indemnity contract even in life and personal accident insurance, caused by insurance policy obligations.
What Reinsurance Does
• It redistributes the risk of loss which a reinsured incurs under the policies it issues according to its own needs. • It redistributes the premiums received by the reinsured according to its own needs.
What Reinsurance Does Not Do!
(continued)
• Convert an uninsurable risk into an insurable one. • Make loss either more or less likely to happen • Make loss either greater or lesser in magnitude • Convert “bad” business into “good business”
Reinsurance in india
• After nationalisation in 1972, General Insuarance Corporation became the Indian reinsurer. • The main objective was to maximise aggregate domestic retention of premium • To secure best terms consistent with the quality of business ceded • To minimise the drain of foreign exchange • However, Oil, satellites and financial risks have always been reinsured in the range of 90% or more
Reinsurance in india………
• Until GIC was notified as a National Reinsurer, • it was operating as a holding / parent company of the 4 public sector companies, controlling their reinsurance programmes. • GIC would receive 20% obligatory cession of each policy written in India.
Reinsurance in india…… • Since deregulation, GIC has assumed the role of the market’s only professional re-insurer. • In order to focus on reinsurance, both in India and through its overseas offices and trading partners, GIC has divested itself of any direct business that it wrote prior to November 2000, with the temporary exception of crop insurance. • It currently manages Hull Pool on behalf of the market, which receives a cession from writing companies and after a pool protection the business is retro-ceded back to the member companies.
General insurance corporation
DOMESTIC • As a sole reinsurer in the domestic reinsurance market, GIC provides reinsurance to the direct general insurance companies in the Indian market. • GIC receives statutory cession of 10% on each and every policy subject to certain limits. It leads many of domestic companies’ treaty programmes and facultative placements.
General insurance corporation……
INTERNATIONAL • A GIC is spreading its wings to emerge as an effective reinsurance solutions partner for the Afro-Asian region and has started leading the reinsurance programmes of several insurance companies in SAARC countries, South East Asia, Middle East and Africa. • To offer its international clientele an easy accessibility, efficient service and tailor made reinsurance solutions; GIC has opened liaison/representative/branch offices in London and Moscow.
Reinsurance market
• A feature of reinsurance market is that because of the way in which insurers and reinsurers operates a company may be trading simultaneously as both a buyer and a seller of reinsurance. • So the organization of reinsurance markets range from a group of local insurers placing all of their reinsurance with a local monopoly reinsurance corporation to something as complex as london reinsurance
Buyers of reinsurance
• • • • • • • Direct writing companies Captive insurance companies Reinsurers State owned insurance corporations State reinsurance corporation Underwriting pools Regional reinsurer pools and corporations
Types of Reinsurance
Types of Reinsurance
• Facultative Reinsurance
– Primary insurer and reinsurer negotiate a specific agreement for a particular risk/exposure. – Best suited for unique, large exposures. – High transaction costs.
Facultative Obligatory Treaty (Facultative +Treaty)
– The insurer cede risks of any agreed class which Reinsurer must accept if ceded
Types of Reinsurance ……..
• Treaty Reinsurance (agreement)
– Reinsurer is obligated to accept all business that falls within the terms of the treaty. – Lower transactions costs but greater potential for adverse selection. – Best suited for numerous, smaller exposures that are more similar. 1. Quota Share Treaty 2. Surplus Treaty
Quota Share Treaties- Proportional
• Primary insurer cedes a fixed, predetermined % of premium & losses on every risk it insurers within class(es) subject to treaty.
• Simple to rate & administer. • Does not stabilize underwriting results.
• Can help reduce reported expenses. • Can cede profitable business.
$100,000 Policy
$150,000 Policy
$50,000 Policy
25% 25%
75%
75%
25%
75%
Quota share treaty…….
• Every risk or policy is shared in the percentage agreed in terms of sum insured subject to a maximum limit and also the premium • Profitable to reinsurer as he participate in every risk or policy • It is costly to ceding insurer and so a short term arrangement or for new class of business • Good for new Insurer with less capital in relation to underwriting of insurance business
Surplus Share Treaties- Proportional
– Minimum limit of retention stated in $ or INR; % of premiums & losses ceded varies by policy. – Avoids cessions on small policies. – Better at providing large-line capacity. – More costly to administer. – Used on property risks, rarely liability. Example: $25,000 retention
$150,000 Policy
$100,000 Policy
17% 25%
75%
83%
