The working group on risk management in
Box-2: Reinsurance Mechanism
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| Box-2: Reinsurance Mechanism Reinsurance is insurance for insurers. Just like insurance, reinsurance is fundamentally the promise to pay possible future claims against a premium today Insurers often hold un-diversifiable or extreme risk in their portfolio and since they do not wish to retain all of it, they transfer part of these risks to reinsurance companies. Reinsurers are paid a premium for taking on a portion of the risk from insurers. Reinsurers also advise insurers on product development and more complex risk- taking. Reinsurance agreements can be proportional or “non-proportional.” With “proportional” agreements insurers and reinsurers divide premiums and losses in a contractually defined proportion, while with “non-proportional” agreements the insurer usually pays all losses up to a defined amount and the reinsurer indemnifies for losses above that limit. “Quota-share” and surplus reinsurance are examples of proportional reinsurance agreements. Excess of loss and stop loss are examples of non-proportional reinsurance agreements. Reinsurers seek to operate across boundaries in order to build globally diversified portfolios. More than 250 reinsurers in 50 countries wrote annual reinsurance premiums of circa US billion in a Non-life reinsurance premiums accounted for US billion or circa 14 percent of the global non-life primary insurance industry. Only US$25 billion of these premiums are written outside North America and Western Europe. The ten largest reinsurers write around 54 percent of reinsurance premiums, and the two giants in the business, Munich RE and Swiss RE, write around US billion of reinsurance premiums. Securitization is an alternative to traditional reinsurance through which catastrophic risks are transferred to capital markets in the form of financial securities. Securitization has been used for natural catastrophe exposures, such as earthquake and hurricanes. Source: Swiss Re Table below lists different risk transfer strategies with advantages and disadvantages and role of the government: Download 0.68 Mb. Share with your friends:
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