Solutions
- Reinsurance information systems
- Regulatory Obligations
- Risk and Insurance management
Definition:
Reinsurance is an operation whereby an Insurance Company cedes all or part of its portfolio, therefore its risks and also its premium and claims, to one or several Reinsurers. The Insurance Company is called the Cedant since it realises a cession to one or several Reinsurers, who accept it. In other words, Reinsurance is the insurance of the Insurer.Reinsurance history:
Insurance has its origins in the first civilizations of Mesopotamia and Egypt (laws relative to the insurance of the Hammourabi Code in Babylon during the 18th century B.C.).Reinsurance appeared well after insurance: at the beginning of the 14th century, in Venice and then throughout Italy, France and the United Kingdom. The first written traces of reinsurance were concerned principally with marine risks.
Modern reinsurance appeared at the end of the 19th century following the industrial revolution, mainly with guarantees against fire risks.
Today, the offer of and demand for reinsurance are confined to western countries benefiting from an already established market (Germany historically, Switzerland, United Kingdom and Untied States) and in the Bermuda Islands for fiscal reasons and the Storm, Hurricane and Cyclone coverage of the neighbouring countries.
Objectives:
The reinsurance concept is that an insurance company cedes all or part of its portfolio, and thus part of its risk but also of its premium and claims, to one or several reinsurers. The insurance company is consequently called the cedant since it realises a cession to one or several reinsurers, the latter realising an active R/I.Insurance and reinsurance share the same goal: the mutual undertaking of risks.
It facilitates the redistribution and dispersion of important risks while alleviating the Insurer’s treasury in case of claims or events of large magnitude. The reinsurance finally helps the Insurer survey their risks by allowing them, for example, to compensate the most catastrophic ones.
Reinsurance was once limited to a few specific cases, but today has become an important player in the insurance sector where it uses its increasing influence. This rise of the Reinsurers’ role is mainly due to the fact that reinsurance enables Cedants to face exceptional events or catastrophes such as the Lothar Storm of 1999 or the World Trade Centre Attacks.
The different types of reinsurance:
The two main types of reinsurance are treaties and facultative.For a treaty, the Cedant is contractually obliged to cede and the Reinsurer to assume a very specific part of the risks covered by the Cedant.
For a facultative however, the Cedant cedes and the Reinsurer covers all or part of the risk covered by a sole insurance policy.
This form of reinsurance is done risk by risk: the facultative is negotiated separately for each insurance policy reinsured. There is no obligation.
Treaties and facultatives may be underwritten in two ways:
- Proportional: all the elements of the risk (capital, premium and loss) are divided proportionally between the Insurer and the Reinsurer.
- Non-proportional: the Reinsurer’s intervention only takes place from a previously defined threshold in counterpart of a premium calculated to compensate the risk he accepts.