Business Insurance What is Reinsurance?

[Mataracy]

Reinsurance is a system whereby an insurer who has accepted a risk can itself insure the liability it has already assumed either in whole or in part with another insurer. Its insurable interest, not in the original insurance , but in the insurance contract it has entered into in respect of the original insurance is unquestionable.
By this arrangement , an insurer is able to accept a larger amount of risk than its retention capacity. From the above definition or description, one can see that reinsurance involves two distinct contracts:
(1). The contract between the insured and the insurance company. Otherwise called the direct insurer or ceding company and
(2) The contract between the insurer and the reinsurer. Therefore there are three distinct interest in a reinsurance arrangement (1) insured (2) the direct insurer and (3) the reinsurer .
The interest of the insured or policyholder is in the original policy as he has no business with the contract between the insurer and the reinsurer because he dies not even know it exist.
In event of insolvency on the the part of the reinsurer, the direct insurer remains liable to the policyholder . On the other hand if the ceding company becomes I insolvent the reinsurer is still liable not to the insured but to the estate of the insurer and this becomes part if its assets. More so. If the insured has breached fundamental terms in the original policy,the reinsurer has no right against such wrong.

 

[Mandy96]

Is this even possible because this is my first time hearing about “Reinsurance” well probably maybe it’s because I am not used to insurance policy due to the part of the world I happen to find myself. Well it’s a good program because it sounds like a double assurance to get insured.

 

[btaliat]

I have heard the word before but never take time to know what it means. Why will even someone reinsures a property with two insurance company. I guess it should be lack of trust. I learnt the insured will only be half compensated from the two insurance companies. How true is that?

 

[Mataracy]

Is this even possible because this is my first time hearing about “Reinsurance” well probably maybe it’s because I am not used to insurance policy due to the part of the world I happen to find myself. Well it’s a good program because it sounds like a double assurance to get insured.

To clarify this statement and make it more understandable to you. I will like to take my time to explain yo you the more.
Reinsurance means when somebody insured part of the property not whole yet and latter reinsure the remaining latter to the same insurance company . or for example you have two Flat together in the same compound or fence which one of it being insured not whole and may be latter you now determined to combined the two now,you can now reinsure the second one.Hope you understand it now?.
We have two type of reinsurance:
(1) Facultative Reinsurance and(2) Treaty Reinsurance

FACULTIVE REINSURANCE
In facultative reinsurance. Offer and acceptance is optional. This is it is not obligatory that the direct insurer must cede part of the risk to the reinsurer and it is not mandatory even when the direct insurer decides to cede, for the reinsurer to accepts the amount ceded. This is the earliest firm of reinsurance available in the market. When the direct insurer with retention capacity obtains a risk that is more than its retention capacity, it might decide to cede the risk in excess of its retention capacity to the facultative reinsurer. It will then prepare a slip detailing the information at its disposal which will enable the reinsurer decide whether to accept or reject the offer. If the facultative reinsurer accepts that he will also meet that proportion of any loss in event of any occurrence.

TREATY REINSURANCE
Treaty reinsurance on the other hand is a direct opposite of facultative in that ceding and acceptance is mandatory. The direct insurer must cede and the Reinsurance Company must accept whatever ceded to him.

Please take your time to go through it.

 

[Mataracy]

I have heard the word before but never take time to know what it means. Why will even someone reinsures a property with two insurance company. I guess it should be lack of trust. I learnt the insured will only be half compensated from the two insurance companies. How true is that?

Please check the explanation I give @ Mandy 96. Thanks