reinsurance(g-08)

8/8/2019 Reinsurance(G-08)

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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



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Solution

Pioneer Insurance (Ceding Company) = Tk 70000

Eastern Insurance(Reinsurer) = Tk 9000

Pioneer Insurance (Ceding Company) = Tk 1000

Tk 90000



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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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reinsurance(g-08)

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