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Tuesday, December 7, 2010
Wednesday, December 1, 2010
Reinsurance - Wikipedia, the free encyclopedia
Reinsurance - Wikipedia, the free encyclopedia
Reinsurance is insurance that is purchased by an insurance company (insurer) from another insurance company (reinsurer) as a means of risk management, to transfer risk from the insurer to the reinsurer. The reinsurer and the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues thousands of policies.
For example, assume an insurer sells one thousand policies, each with a $1 million policy limit. Theoretically, the insurer could lose $1 million on each policy – totaling to $1 billion. It may be better to pass some potential risk to a reinsurance company (reinsurer) as this will minimize the insurer's risk.
There are two basic methods of reinsurance:
1.Facultative Reinsurance is specific reinsurance covering a single risk. The reinsurer is reinsuring one insured on a specific policy. Each facultative risk is submitted by the insurer to the reinsurer.
2.Treaty Reinsurance is a method of reinsurance requiring the insurer and the reinsurer to formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract. There are two basic methods of treaty reinsurance:
Quota Share Treaty Reinsurance, and
Excess of Loss Treaty Reinsurance.
In the past 30 years there has been a major shift from Quota Share to Excess of Loss in the property and casualty fields.
Reinsurance is insurance that is purchased by an insurance company (insurer) from another insurance company (reinsurer) as a means of risk management, to transfer risk from the insurer to the reinsurer. The reinsurer and the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues thousands of policies.
For example, assume an insurer sells one thousand policies, each with a $1 million policy limit. Theoretically, the insurer could lose $1 million on each policy – totaling to $1 billion. It may be better to pass some potential risk to a reinsurance company (reinsurer) as this will minimize the insurer's risk.
There are two basic methods of reinsurance:
1.Facultative Reinsurance is specific reinsurance covering a single risk. The reinsurer is reinsuring one insured on a specific policy. Each facultative risk is submitted by the insurer to the reinsurer.
2.Treaty Reinsurance is a method of reinsurance requiring the insurer and the reinsurer to formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract. There are two basic methods of treaty reinsurance:
Quota Share Treaty Reinsurance, and
Excess of Loss Treaty Reinsurance.
In the past 30 years there has been a major shift from Quota Share to Excess of Loss in the property and casualty fields.
Glossary of Reinsurance Terms
Glossary of Reinsurance Terms:
"Admitted Reinsurance - A company is “admitted” when it has been licensed and accepted by appropriate insurance governmental authorities of a state or country. In determining its financial condition a ceding insurer is allowed to take credit for the unearned premiums and unpaid claims on the risks reinsured if the reinsurance is placed in an admitted reinsurance company.
Arbitration Clause - Language providing a means of resolving differences between the reinsurer and the reinsured without litigation. Usually, each party appoints an arbiter. The two thus appointed select a third arbiter, or umpire, and a majority decision of the three becomes binding on the parties to the arbitration proceedings.
Attachment Point - The dollar amount under an excess of loss reinsurance contract at which a ceding (primary) insurer's retention requirements have been met, and the point at which the reinsurance will respond to a loss.
Bordereau (plural Bordereaux) - A form providing premium or loss data with respect to identified specific risks which is furnished the reinsurer by the reinsured.
Burning Cost - A term most frequently used in spread loss property reinsurance to express pure loss cost or more specifically the ratio of incurred losses within a specified amount in excess of the ceding company’s retention to its gross premiums over a stipulated number of years."
"Admitted Reinsurance - A company is “admitted” when it has been licensed and accepted by appropriate insurance governmental authorities of a state or country. In determining its financial condition a ceding insurer is allowed to take credit for the unearned premiums and unpaid claims on the risks reinsured if the reinsurance is placed in an admitted reinsurance company.
Arbitration Clause - Language providing a means of resolving differences between the reinsurer and the reinsured without litigation. Usually, each party appoints an arbiter. The two thus appointed select a third arbiter, or umpire, and a majority decision of the three becomes binding on the parties to the arbitration proceedings.
Attachment Point - The dollar amount under an excess of loss reinsurance contract at which a ceding (primary) insurer's retention requirements have been met, and the point at which the reinsurance will respond to a loss.
Bordereau (plural Bordereaux) - A form providing premium or loss data with respect to identified specific risks which is furnished the reinsurer by the reinsured.
Burning Cost - A term most frequently used in spread loss property reinsurance to express pure loss cost or more specifically the ratio of incurred losses within a specified amount in excess of the ceding company’s retention to its gross premiums over a stipulated number of years."
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