What is Reinsurance?

[Dhruv]

Reinsurance is insurance that is purchased by an insurance company (insurer) from another insurance company (reinsurer) as a means of risk management, to transfer risk from the insurer to the reinsurer.
There are two basic methods of reinsurance -
1.Facultative Reinsurance In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk assumed by a particular specified insurance policy. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance normally is purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual risks. Underwriting expenses and, in particular, personnel costs,are higher relative to premiums written on facultative business because each risk is individually underwritten and administered. The ability to separately evaluate each risk reinsured, however, increases the probability that the underwriter can price the contract to more accurately reflect the risks involved.
2.Treaty Reinsurance is a method of reinsurance requiring the insurer and the reinsurer to formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract. There are two basic methods of treaty reinsurance:

• Quota Share Treaty Reinsurance, and
• Excess of Loss Treaty Reinsurance.

Source - wikipedia.org

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[Dhruv]

Execllent document on Reinsurance. (see attachment)

[v.r.s.nathan]

Risk-attaching basis -
A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage for the whole policy period when written.
All claims from cedant underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from cedant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.

Loss-occurring basis -
A Reinsurance treaty from under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered.
As opposed to claims-made policy. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for most policies.

Claims-made basis -
A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred

Few more terms on reinsurance from wikipedia.org

[Nidhi]

Reinsurance is an insurance purchased by another insurance company. In reinsurance, some or part of its liabilities are passed ('ceded') to the otherinsurance company.


Insurers purchase reinsurance for four reasons:
1. To limit liability on a specific risk,
2. To stabilize loss experience,
3. To protect themselves and the insured against catastrophes, and
4. To increase their capacity.


Reinsurance benefits:
1. Risk Transfer
2. Companies can avoid having to absorb large losses by passing risk; this frees up additional capital.
3. The expertise of another insurer can help a company obtain a higher rating and premium.

[Nayros]

Reinsurance is an insurance purchased by another insurance company. In reinsurance, some or part of its liabilities are passed ('ceded') to the otherinsurance company.


Insurers purchase reinsurance for four reasons:
1. To limit liability on a specific risk,
2. To stabilize loss experience,
3. To protect themselves and the insured against catastrophes, and
4. To increase their capacity.


Reinsurance benefits:
1. Risk Transfer
2. Companies can avoid having to absorb large losses by passing risk; this frees up additional capital.
3. The expertise of another insurer can help a company obtain a higher rating and premium.

What do you mean by Risk Transfer ?

[Nayros]

Risk-attaching basis -
A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage for the whole policy period when written.
All claims from cedant underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from cedant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.

Loss-occurring basis -
A Reinsurance treaty from under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered.
As opposed to claims-made policy. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for most policies.

Claims-made basis -
A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred

Few more terms on reinsurance from wikipedia.org

Thanks, it is a detailed answer...