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PRINCIPLE OF INSURANCE(F-210)
GROUP NO- 08
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Prepared For
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We are
Sl no. Name ID
1 Farzana Nasreen 15-004
2 Saifuddin Ahmed 15-010
3 Sumaiya Akter 15-018
4 Pramita Saha 15-030
5 Tasnuva Chowdhury 15-032
6 Sultana Islam 15-078
7 Mohammad Nayem Uddin 15-086
8 Md. Nazmus Sayeed Sharon 15-116
9 Pritam Saha 15-130
10 Fahmina Tasmin Munia 15-144
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NOW YOU ARE WITH
SULATNA ISLAM
(ID-078)
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Reinsurance/Reassurance
Insurance of insurance Original insurer gets risk
covered with another insurer
Primary insurer becomes insured
Some Important Terminologies
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Reinsurer/Reassurance
Give reinsurance to primary insurer
Insurance company that getsthe assurance of risk taken by
them from another insurance
company Also known as ceding company/direct
company/original or primary insurer
Reinsured
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Cession
Amount of risk ceded for reinsuranceRetrocession Reinsurance of reinsurance
Reinsurer becomes reinsured
Retention Amount of risk retained by ceding company
Retention depends on financial strength of ceding
company Limitis the rough guide for ceding co. depending on
quality and nature of risk.
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Reciprocity
Situation denotes desire for satisfaction ofmutual interest
Looking after of different insurance companys
interest from expectation of reinsurance
business
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Re-insurance
Re-insurance is an agreement to indemnify the
assured partially or altogether, against a risk
assumed by it in a policy issued to a third party.
The main purpose ofRe-insurance is to
minimize the risk through spreading or
transferring.
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PROCESS OF RE-INSURANCE
In case of excessive risk, the insurer can re-insure the contract.
The re-insurer in consideration of a premium paid bythe re-assured, agrees to indemnify the latter undercertain terms and conditions.
The original insurer is obligated directly to his insuredand the re-insurer is obligated to the ceding company.
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FEATURES OF RE-INSURANCE:
Re-sharing of risk
Contract of utmost good faith
Contract having an involvement with
Principle of indemnity
Established between two parties
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MERITS OF RE-INSURANCE:
Wide distribution of risks
Stabilization of profits & gainsMore rapid growth
Flexibility in the activities of re-insurer
Easier prediction of losses
Development of business
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NOW YOU ARE WITH
TASNUVA CHOWDHURY
(ID-032)
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Reasons For Reinsurance
Risk minimization by spreadingRisk transferFlexibility
Able to take risk beyond insurers financial resources
Can take various kind of risk
AccumulationReduces the possibility of getting involved in
undesirable additional risk loadKeep down the pressure of accumulation to a
sustainable limit
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Development
Stabilize profits and losses Permits more rapid growth of the insurance company
Prediction for rating Providing protection to the insurer from unsustainable
lossesCreates a forum of getting large number of similar casesthrough reciprocity
A new insurer
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Life Insurance:
A life insurance company has 150000lives all aged 25 and each insured for Tk.5000. If the
company gets a new proposal from a men aged 25but for an amount of Tk.20000 then the companyshall have to run the risk of an additional amount ofTk.15000 which will make the account imbalance if
the new client dies first. In these type of cases,reinsurance is must with another company forTk.15000.
Example
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General Insurance:
A general insurancecompany have the capacity of bearing risk up
to Tk.300000 for any property or liability
insurance. If a risk is placed for Tk.500000 by
the insured, then the insurer must have toreinsure Tk.200000 with another company to
transfer and minimize the additional risk.
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NOW YOU ARE WITH
NAZMUS SAYED SORON(ID-116)
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TYPES OF REINSURANCE:
Facultative Reinsurance
Treaty Reinsurance
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WHAT IS FACULTATIVE REINSURANCE?
Facultative reinsurance means reinsurance ofindividual risks by offer and acceptance wherein thereinsurer retains the faculty to accept or reject eachrisk offered.
A separate reinsurance agreement that isnegotiated for a particular risk or insurance policy.
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Example
BGIC received a proposal for TK.10000000 from
Square pharmaceuticals the company retrntion Tk
5000000 the company has no standing treaty
arrangement.So BGIC must go for facultitivereinsurance & try the market until full 1 crore is
absorved.
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Company Percentage of
acceptance
Amount of
acceptance
CityGeneral insurancecompany
20% 20000000
Northern Generalinsurance company
20% 20000000
Federal insurancecompany
10% TK 1000000
BGIC(retention) 50% TK 5000000
Total 100% 10000000
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Addresses exclusions and limits in
reinsurance treaties.Used to protect reinsurance treaties.
Obtain second opinion of reinsurer
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The formality cost is high.
Time required for the arrangement &theinsured is left unsecured during this time .
Business can be lost.
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NOW YOU ARE WITH
MOHAMMAD NAYEM UDDIN(ID-O86)
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TREATY INSURANCE
Agreement between two or among more insurancecompanies
One (direct insurer) agrees to cedeThe other or others (reinsurer) agree to accept
reinsurance business as per provisions specified in thetreatyPre-arranged agreement within a predetermined
limitIf cessions are made as per terms of the treaty, the
reinsurer(s) cannot refuse to accept.
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TYPES OF TREATIES
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QUOTA SHARE
The direct insurer cedes a predetermined
proportion of all its business accepted in a
certain class to the reinsurer.
The reinsurer accept it in return for a
corresponding proportion of the premium.
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MERITS
Helpful for small and new businesses
Risk is borne by all in the same
In spite of having ability to take full risk, a
insurer has to take predetermined percentageof risk.
DEMERITS
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NOW YOU ARE WITH.
FARZANA NASREEN(ID-004)
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EXCESS OFLOSS
It is quite different from facultative, quota orsurplus system
The sum insured does not form any basis
It is not expressed in terms of percentage
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EXAMPLE
Proposition:Against all public liability insurances, the
insurer decides to bear a loss up to Tk.1,00,000 in respect of every loss. The
reinsurers agree to bear any balance beyond
tk. 1,00,000. the loss is for Tk 2,00,000. thereis an upper limit of Tk 80,000.
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REINSURANCE ARRANGEMENT
Tk. 2,00,000Total loss
Tk. 80,000Upper limit
Tk. 1,00,000Insurer
bears
Tk. 80,000Reinsurerbears
Insurer again bears thebalance because ofupper limit
Tk. 20,000
Therefore,
Insurer bears
Tk. 1,20,000
Reinsurer bears
Tk. 80,000
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SURPLUS TREATY
The direct insurer agrees to reinsure only the surplusamount after its retention, and the reinsurers agree toaccept such cessions usually up to a predetermined upperlimit
Usually are arranged in lines, each line being equal toinsurers own retention
The insurer can automatically make a gross acceptance ofthe risk to the extent of his own retention plus the amountof retention multiplied by the number of lines for whichtreaty has been made
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ABCsRetention=
Tk.1000000
Treaty consumes(9X10 lac)=Tk. 9000000
AB
CsR
etention=Tk.1000000
Treaty receives=Tk. 6000000
AB
CsRetention=Tk.1000000
Treaty consumes (Upperlimit applies)=
Tk.8000000
Exp 1:ABC Ins Co. has receiveda proposal for fireinsurance from a textilemill for Tk. 1 crore. Thecompanys retention forthis class of business is
Tk.10 lac A 9 line surplustreaty exists.
Exp 2:Same as Exp.1but the suminsured is Tk.7000000
Exp 3:Same as Exp.1 but thesum insured is Tk.15000000 and a treatyupper limit exists forTk.8000000
Tk.10000000
Tk.7000000 Tk.9000000
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From example 1 and 2 it can be observed that the treatyreceives only the balance after the ceding Cos and even though
the treaty has got a higher capacity, it is under placed becausethe sum-insures itself is lower than capacity and therefore theyget the full balance of the sum-insured.
In the 3rd example it can be observed that ABC company has gotan automatic arrangement up to TK. 9000000 and there stillremains a surplus of Tk. 6000000 for which no previous
arrangement is there. The insurer therefore can only make agross acceptance of Tk.9000000. Alternatively, a facultativearrangement (unless a second surplus exists) must be made forthe balance of Tk. 6000000 before issuing a cover for the fullamount.
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Losses are borne in the same proportion by all
the reinsurers of reinsurance arrangement.
Sometimes an unhealthy approach is followedby some insurance company. If no facultative
arrangement can be made, then an attempt maybe made by the ceding company to get theentire money absorbed within the treatyarrangement. It may disturb the companys
financial stability and profitability, and it canalso create adverse impact on the reinsurersinterest.
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MERITS
The most accepted reinsurance now-a-days. The advantages of bothfacultative and quota share system exist there, while the disadvantagesof these two types are missing.
Cover is automatic as opposed to Facultative system
Less expensive in comparison to facultative
Involves little procedural formalities
Unlike quota system, the ceding company can retain whatever it likesand only the balance is ceded. Unnecessary cession of business andpremium is not envisaged
Advantageous to the growing established companies
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DEMERITS
For big liability insurance or for protection against losses ofcatastrophe nature, Excess ofLoss or Stop Loss are better
suited.
Reinsurers cannot usually apply underwriting judgmentfor each and every individual case.
Not suitable for new insurance companies.
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NOW YOU ARE WITH.
PRITAM SAHA(15-130)
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EXCESS OF LOSS RATIO
Known as Stop Lossreinsurance.
Tries to raw a relations ipetween ross pre iu
an ross clai .
Arran e ent wit t e reinsurers is suct at at t e year en reinsurer will only pay
t e alance w ic excee e t epre eter ine loss ratio.
Treaty ay containupper li it.
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Contract
Pioneer Insurance has arranged an excess ofloss ratio treaty with Eastern Insurance
whereby Pioneer Insurance will bear losses upto an amount not exceeding70% of the grosspremium of the class. Eastern Insurance haveagreed to bear any balance so that ceding
companys gross loss ratio is maintained at70%, but not exceeding say 90% of thebalance
Excess of Loss ratio(contd)
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Problem
Pioneer Insurance gets a insurance contract
where it can earn Tk1 lac premium and the totalloss over the year is Tk80000. For thisinsurance, Pioneer Insurance company makes a
excess of loss ratio treaty with Eastern
Insurance
Excess of Loss ratio(contd)
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Solution
Pioneer Insurance (Ceding Company) = Tk 70000
Eastern Insurance(Reinsurer) = Tk 9000
Pioneer Insurance (Ceding Company) = Tk 1000
Tk 90000
Excess of Loss ratio(contd)
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POOLS
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NOW YOU ARE WITH.
SAIFUDDIN AHMED(ID-010)
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Forms of Reinsurance
1.Participating or Pro-rata Amounts payable by the insurer and the reinsurers in
respect of loss is determined and agreed before a
loss. And the premium received by insurer is also
distributed in same proportion.
Example :
F
acultative Quota share
Surplus
Pool.
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Forms of Reinsurance(contd)
2. Non-proportional :
The reinsurance is on different terms andconditions.
The proportion of loss or premium is notdistributed proportionally between insurer andreinsurer.
Example :
Excess of loss treaty.
Stop loss treaty.
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Fire Insurance
ur lus reat :
i el use
Quota hare reat :
use b ne l establishe com anies
Facultative reat :
occasionall use (in case of bigger cases)
Excess ofLoss reat :incase of catastro hic risks.(also use in
a itional covers like c clone, hurricane floo )
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Marine and Aviation Insurance
Quota Share andSurplus Treaty :commonly used
Facultative Treaty :widely used.
Excess ofLoss and Stop Loss
Treaty :used in catastrophe hazards like
general average, total loss to hulletc.
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Accident Insurance
All types are commonly used.
Excess of Loss and Stop Loss Treaty : most
favorite incase of catastrophe hazards orhazardous elements.
Pools Treaty: in special types of risks.
Facultative Treaty : when the ceding
companies does not wish to interest in other
treaties
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Life insurance
Surplus Treaty : most commonly used.
Facultative Treaty : used in a very limited
degree. Pools Treaty : used in impaired lives like as
lives suffering from heart diseases, blood
pressure, diabetes etc
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NOW YOU ARE WITH.
PRAMITA SAHA
(ID-030)
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Business of reinsurance is a part of business of insurance,but it is not whole about business of insurance as it is a vastlegal matter in comparison to business of reinsurance. Thevery important legal considerations which should beordinarily be known by a student of insurance are givenbelow:
Reinsurance is a contract between the direct insurer and thereinsurer to which original assured is not a party andwhich does not obligate the reinsurer to the assured.Policy holders redress lies with the insurer not thereinsurer.
Some Essential Aspects
Reinsurance is a contract
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Contract of reinsurance require utmost good faith includingsame rules, with reference to misrepresentation and non-disclosure that apply in cases of ordinary insurance.
A contract of reinsurance is a subject to requirement of
insurable interest which entitles the insured or the insurer
to insure or reinsure. insurers have got insurable interestagainst the policy they have issued because of the possiblefinancial involvement arising out of a loss which justifiesexistence of insurable interest.
UtmostGood Faith
Insurable Interest
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Reinsurance is an agreement to indemnify the directinsurer, partially or altogether, against a risk assumed byhim in a policy issued by to a third party.
The reinsured company obtains the power to collect fromthe reinsurers by reason of loss suffered by the original
insured.
Agreement to indemnify
Obligation to the ceding company
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NOW YOU ARE WITH.
FAHMINA TASMIN
(ID-144)
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Reinsurance and coinsurance are also different fromeach other. In coinsurance the insured is contractuallylinked up with the various coinsurers directly to the
extent of respective shares assumed by them, in
reinsurance he is not a party at all.
he liability of reinsurers arise only when the ori inal
insurer makes ex- ratia payment.
REINSURANCE VS. COINSURANCE
LIABILI Y OF REINSURERS
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Principle of subrogation is applicable in reinsurance. As perpolicy terms and condition, if insurer gets any payment of aclaim, the reinsurer become entitled to such recoveryproportionately.
Principle of contribution is also applicable in reinsurance.
By effecting numbers of reinsurance contracts the cedingcompany cannot recover from each reinsurer full amount ofloss independently.
PRINCIPLE OF SUBROGATION
PRINCIPLE OF CONTRIBUTION
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