Reinsurance for Beginners by Mohammed Sadullah Khan

In insurance the insured is the person who needs protection and he buys protection by way of the insurance. Whereas the Insurance companies who deal in different kinds of risks also need to protect themselves hence they have to buy insurance to protect them-selves

Insurance Companies are concerned about their capacities. Reinsurance gives them a chance to underwrite the risks which are beyond their capacity

Our definition of Reinsurance is “the transfer of the complete or partial risk by the Insurance Company to the Reinsurer”

Insurance is the business where huge money is collected from the Insured, saved and invested to be paid at the time of misfortune or after an agreed period of time

Insurance in simple terms is nothing but the “losses of few shared by many”

The company purchasing the reinsurance is known as the Primary or the Ceding Insurer, the company selling the reinsurance is known as the Reinsurance Company or the Reinsurer

Even Reinsurance Companies want to protect themselves from dangerous levels of risks hence in-order to protect themselves against losses they buy Insurance to protect them-selves, which is known as Retrocession

The insured may not be in a position to approach the Reinsurance Company in case of default by the Insurance Company

“Uberrimae Fidei”, which is a Latin phrase for Utmost good faith

The principle of Indemnity states that the person suffering the financial loss should be compensated equal to the loss he suffered. He should be in the same financial position after the loss as he was before the loss

Subrogation, which will help the Insurance Company recover the damages from the third party on behalf of their Insured. In laymen terms Subrogation is nothing but assuming the legal rights of a person for which the expenses or claim has been paid

“Cut through” clause. This allows the Reinsurers to pay to the insured directly in case the Insurance Company becomes bankrupt

Proportional reinsurance means reinsurers take an agreed or stated percent share of each policy that Insurance Company writes

As we know that renewal is treated as a new contract

In Stop Loss cover the loss ratio of the Insurance Company is stopped at a certain percentage which is agreed upon by both the Insurance and Reinsurance Companies. If the loss in any one calendar year exceeds the loss ratio agreed upon the Reinsurer’s will pay the remaining claim up-to an upper cap limit

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