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Financial Reinsurance


Financial Reinsurance

What is Financial Reinsurance?

Financial Reinsurance is a form of reinsurance which is focused more on capital management than on risk transfer. In the non-life segment of the insurance industry this class of transactions is often referred to as finite reinsurance.

Below are some of the major types of reinsurance policies.

  • Facultative Coverage
  • Reinsurance Treaty
  • Proportional Reinsurance
  • Non-proportional Reinsurance
  • Excess-of-Loss Reinsurance
  • Risk-Attaching Reinsurance
  • Loss-occurring Coverage

What is meaning of Reinsurance?

Reinsurance is insurance that is purchased by an insurance company (the "ceding company" or "cedent" or "cedant" under the arrangement) from one or more insurance companies (the "reinsurer") directly or through a broker as a means of risk management, sometimes in practice including tax mitigation and other reasons described below. The ceding company and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay a share of the claims incurred by the ceding company. The reinsurer is paid a "reinsurance premium" by the ceding company, which issues insurance policies to its own policyholders.

What is assumed reinsurance?

Assumption reinsurance is a form of reinsurance whereby the reinsurer is substituted for the ceding insurer and becomes directly liable for policy claims. This ordinarily requires a notice and release from affected policyholders.

What is the difference between proportional and non proportional reinsurance?

Nonproportional reinsurance. Also known as excess of loss reinsurance. Losses excess of the ceding company's retention limit are paid by the reinsurer, up to a maximum limit. Reinsurance premium is calculated independently of the premium charged to the insured. The reinsurance is frequently placed in layers.

What is facultative reinsurance?

Facultative reinsurance is a type of reinsurance contract that covers a single risk.Facultative reinsurance is one of the two types of reinsurance contract transaction, with the other type being treaty reinsuranceFacultative reinsuranceis considered to be more transaction-based than treaty reinsurance.

What is the self insurance?

Self-insure is a method of managing risk by setting aside a pool of money to be used if an unexpected loss occurs. Theoretically, one can self-insure against any type of loss. However, in practice, most people choose to buy insurance against potentially large, infrequent losses.

What is an assumed premium?

Assumed Reinsurance Premium. The premium from policies an insurer accepts, in whole or in part, from another insurance company. Ceded Reinsurance Premium. The premium from policies an insurer transfers, in whole or in part, to another insurance company.

What is the difference between insurance and reinsurance?

Short answer: Insurance is the (usu. monetary) transfer of risk from one party (e.g. the client) to another (e.g. insurance company.) Reinsurance is the further transfer of this risk from the insurance company to a reinsurer. You can think of it as insurance for insurance companies.

What is a reinsurance commission?

A fee paid by a reinsurance company to the ceding company to cover administrative costs and acquisition expenses. Ceding commission is most commonly found in pro rata or quota share reinsurance treaties, and may be calculated as a percentage of the reinsurance company's premium rather than a flat amount.