Talk:Reinsurance

message: Reinsurance is the means by which an insurance company (called the reinsured, ceding company or cedant) shares the risk of loss with another insurance company (called the reinsurer).   There are many reasons an insurance company will choose to buy reinsurance, but the five major reasons an insurance company may wish to transfer all or part of a risk of loss are:   
1st) Reinsurance allows an insurance company to offer larger limits of protection to a policyholder.   If an insurance company can safely write only $5 million in limits on any one policy, it can reinsure (or cede) the amount of the limits in excess of  $5 million to reinsurers.
2nd) Reinsurance helps to make an insurance company’s results more predictable, aiding in short range and long range forecasting.
3rd) Reinsurance enlists the expertise of other underwriting, actuarial and claims departments in analyzing new lines of business or unusual risks.
4th) Reinsurance can provide surplus relief.   Surplus is roughly the same as shareholder’s equity on a balance sheet.   Because of the nature of insurance regulation, insurance accounting must pro-rate premium earned over the course of a policy term, while the expenses associated with writing the policy are entirely recorded at the beginning of the policy.   This reduces surplus.  If a reinsurer provides a commission to the ceding company, the commission will offset the expenses.  This is surplus relief.
5th) Reinsurance makes it possible for an insurance company to withdraw from a market without abandoning its policy holders. 
Risks of loss can be transferred via a reinsurance treaty wherein the ceding company transfers a large segment of it business to a reinsurer.   The terms and conditions of the transfer are agreed to in a treaty contract.  Before agreeing to underwrite a treaty, the reinsurer will assess the skills and profitability of the ceding company.  
Risks of loss can also be transferred one policy at a time via a facultative certificate.    Before agreeing to underwrite a certificate, the reinsurer will assess the risk of the one policy.
Finally risks of loss can be transferred after an insurance company reaches the level of loss it is willing to assume for any given year.   These contracts are commonly called Stop Loss contracts.
Facultative Certificates and Reinsurance Treaties can both be written on a quota share (or proportional basis) or as excess of loss (or non-proportional basis).   In proportional reinsurance, the ceding company retains a percentage of each and every risk and cedes the remaining percentage.   In non-proportional reinsurance, the ceding company retains the first dollars of each risk and cedes the amounts in excess of a pre-determined dollar amount.   As in any insurance contract, there are limits of coverage placed on all treaties and facultative certificates.
Astrochess 15:42, 25 September 2005 (UTC)
thread_title:  Possible Reinsurance Preface 

message: I agree that reinsurance can be obtained at less than they charge for the original coverage. That is not arbitrage, that is good business sense. It doesn't seem like a good idea to charge less for something than you have to pay to get it yourself.
Arbitrage, on the other hand, is where they believe it will cost them x, but a reinsurer is prepared to accept y (which is less) for that same risk. That is arbirtrage because it's about finding discrepancies in the market and taking advantage of it.
193.134.170.35 12:05, 21 February 2006 (UTC)
thread_title: Arbitrage

message: Do we really need this list? we already have :Category:Reinsurance companies, and this is beginning to both look like and attract linkspam. I am removing them for now, -- Avi 20:44, 15 June 2006 (UTC)
thread_title:  Reinsurance companies and markets 

message: I don't know if this is the right place to say this or not, but this is an excellent article on reinsurance.  This isn't a commonly known concept outside the insurance industry and this article lays out the information very clearly.  
Great job!
User:darylkulak 21:10, 24 October 2007 (UTC)
thread_title:  This is an Excellent Article 

message: My opinion is that defining "per event XOL" as "CAT" is not entirely correct. XOL Treaties could be divided to:
* XOL/R - per risk
* XOL/E - per event
* CAT - per catastrophe
* Aggregate XOL (stop loss and similar)
* "Umbrella" treaties
The main difference between XOL/E and CAT is:
XOL/CAT would only cover claims rising because of a catastrophe (would only cover natural perils).
XOL/E would cover non natural perils even when there was no catstrophe (flood, earthquake etc.). This would give some level of protection against unknown accumulations (this way you could for example set up XOL/E with lower limit equal to your retention limit (equal to maximum sum insured on class of business), so in case of unknown accumulation claims above your retention limits would be covered by reinsurer).
Different classes of business use different types of XOL. For example motor would usually be XOL/R so if two cars insured in the same company for sum insured of 2M + 2M collide and company has XOL/R covering some amount above 1M then 1M + 1M would be recovered from reinsurer. On the other side if marine has XOL/E covering some amount above 10M and two ships with sum insured 7M + 7M collied then reinsurer would have to pay 4M (total loss is assumed in both examples above).
You can find pictures and description of XOL/R and XOL/E difference on Swiss re site under publications ("non prop reinsurance accounting", 2000). This is a very usual misunderstanding while identifying event vs claim/risk is very important for XOL Treaties.
U2perkunas (talk) 11:15, 1 January 2008 (UTC)
thread_title:  XOL types 

message: This page is redirected to from double insurance but "double insurance" is a very different concept to "reinsurnace". Double insurance exists where somebody takes out to insurance policies on the same thing with 2 companies.  They are thus indemnified by two companies for the same thing and this usually invalidates/voids their insurance. I'm over simplifying in my description but at least on the European side of the Atlantic "double insurance" ≠ reinsurance--Cailil  talk 10:08, 4 March 2015 (UTC)
thread_title:  Double insurance redirect?