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Posts Tagged ‘Reinsurance’

Reinsurance defined

In Finance on May 3, 2012 at 9:16 am

It is an insurance of insurance. Reinsurance is the process whereby one one party called the Reinsurer in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.

Various Parties and terms involved in reinsurance contract are –

  • Reinsurer – An insurer or reinsurer assuming the risk of another under contract.
  • Retention – The net amount of risk which the ceding company or the reinsurer keeps for its own account or that of specified others.
  • Retrocession – A reinsurance of reinsurance. Example: Company “B” has accepted reinsurance from Company “A”, and then obtains for itself, on such business assumed, reinsurance from Company “C”. This secondary reinsurance is called a Retrocession. The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.
  • Cede – When a company reinsures its liability with another, it “cedes” business.
  • Ceding Commission – The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits – sometimes expressed as a percentage of the gross reinsurance premium.
  • Ceding Company – The original or primary insurer; the insurance company which purchases reinsurance.
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