REINSURANCE


Reinsurance is a contract between two insurers ie. an original insurer, who is called direct insurer and another of insurer, who is called reinsurer. It refers to the arrangement under which an insurer enters into a contract with another insurer for the assumption of a part or whole of the risk insured by the first insurer. In other words, the reinsurer undertakes to insure the first insurer against loss from some or all of the risks insured. It can otherwise be called as insurance of insurance. This may be done in several ways The reinsurer may agree

a. to cover all losses beyond a specified amount,
b. to cover a proportion of every loss, or
c. to cover the total of all losses over a specified amount during a given period.

A contract of reinsurance is a contract of indemnity as well. It also requires utmost good faith. Here there is a contract between one insurer with another insurer who may be called reinsurer. The insured under the original policy has nothing to do with the reinsurer. The contract between him and his insurer, and the contract between his insurer and reinsurer are two separate contracts quite independent of each other If there is any loss, the reinsurer will pay the insurer after the insured has been indemnified.

Reinsurance works like this:- The insurer gives the reinsurer a portion of the premium he collects from the insured and in return is covered for losses above a particular limit. Reinsurance primarily deals with catastrophic risks that are not predictable and cause the greatest exposure for the insurance company. 

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