Reinsurance is the insurance that one insurance company purchases from another insurance company in order to transfer risk from the insurer to the re insurer.
It is insurance for insurers. The basic intention behind reinsurance is to reduce the risks associated with the policies
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Posted: Mon Jun 20, 2011 04:18 pm Post Subject:
The basic intention behind reinsurance is to reduce the risks associated with the policies
This is incorrect. While some reinsurance companies mitigate the risk being transferred to them by applying their own underwriting guidelines to decline a risk (a "facultative" reinsurance agreement), the true purpose of reinsurance is compliance with the financial regulation of insurance companies.
As stated prior to the post above, reinsurance is required because insurance companies cannot have more claims liability (face amount of life insurance/policy limits of liability) on their books than they have capital assets to pay those claims. To avoid being declared insolvent, the insurance company must have reinsurance agreements in place to cover the excess liability.
Without reinsurance, the vast majority of insurance companies, including reinsurance companies, would be unable to write new business because they don't have enough capital assets to pay 100% of their claims exposure if all the claims occurred on the same day.
Of course, on the day that happens, there will be other things far more important to worry about.
Posted: Mon Jun 20, 2011 10:16 am Post Subject:
Reinsurance is the insurance that one insurance company purchases from another insurance company in order to transfer risk from the insurer to the re insurer.
It is insurance for insurers. The basic intention behind reinsurance is to reduce the risks associated with the policies
_________________
[[ Link removed per TOU by moderator MaxHerr ]]
Posted: Mon Jun 20, 2011 04:18 pm Post Subject:
The basic intention behind reinsurance is to reduce the risks associated with the policies
This is incorrect. While some reinsurance companies mitigate the risk being transferred to them by applying their own underwriting guidelines to decline a risk (a "facultative" reinsurance agreement), the true purpose of reinsurance is compliance with the financial regulation of insurance companies.
As stated prior to the post above, reinsurance is required because insurance companies cannot have more claims liability (face amount of life insurance/policy limits of liability) on their books than they have capital assets to pay those claims. To avoid being declared insolvent, the insurance company must have reinsurance agreements in place to cover the excess liability.
Without reinsurance, the vast majority of insurance companies, including reinsurance companies, would be unable to write new business because they don't have enough capital assets to pay 100% of their claims exposure if all the claims occurred on the same day.
Of course, on the day that happens, there will be other things far more important to worry about.
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