WHAT IS REINSURANCE?
In simple terms reinsurance is insurance
for
insurance companies.
It is a means by which an insurance
company can protect itself from risks.
The company who requests for the
cover is called the cedant and the
reinsurer is called the ceded.
WHY REINSURANCE
Risk Transfer
Greater individual risks than its size
Offer higher limits of protection to a policyholder
Income Smoothing
Absorbing larger losses
Surplus relief
Solvency Margin
Arbitrage
Price differential between two or more markets
Reinsurer’s Expertise
Manageable and Profitable Portfolio
Managing Cost of Capital
Capital In terms of Reinsurance
How Reinsurance Works
Agents
Insurance Insurance Reinsurance
Policy Companies Companies
Holders
Reinsurance
Brokers
Intermediaries
Risk Takers Transfer Of
Middle
Persons
Risk
TYPES OF REINSURANCE
There are two types of reinsurance:
Facultative
Treaty
Each type of reinsurance can be
structured in one
of the following two ways:
Proportional
Non Proportional
FACULTATIVE REINSURANCE
Facultative reinsurance applies to an individual
risk,
i.e., one commercial fire policy or even only one
location.
Insurer and reinsurer agree to the reinsurance
terms
on each individual agreement.
It is generally used to reinsure:
a) Extra-hazardous or unusual risks which might be
excluded from treaty reinsurance agreements.
b) High valued risks with policy limits exceeding
maximum treaty parameters.
TREATY REINSURANCE
Applies to an insurance company’s entire book of
business.
Some of these include all commercial fire polices,
all automobile policies, all workers’
compensation policies, all homeowners policies,
or, more generally, any combination of the above.
Treaty reinsurance is the one in which both pro-
rata and excess of loss forms are used.
PROPORTIONAL
REINSURANCE
One or more reinsurers take a stated percent share
of each policy that an insurer produces.
The reinsurer will receive the stated percentage of
each dollar of premiums and will pay that percentage
of each dollar of losses.
Example: Surplus share: Reinsurer assumes pro
rata responsibility for only that portion of any risk
which exceeds the company’s established retentions.
NON PROPORTIONAL
REINSURANCE
This insurance responds when the loss suffered by the
insurer exceeds a certain amount.
Example:
The insurer is prepared to accept a loss of $1 million for any
loss which may occur and they purchase a layer of
reinsurance
of $4 million in excess of $1 million. If a loss of $3 million
occurs, then insurer will retain 1Million and will recover $2
million from its reinsurer(s).In this example, the reinsured
will retain any loss exceeding $5 million unless they have
purchased a further excess layer (second layer) of say $10
million excess of $5 million.
RETROCESSION
Reinsurance the Reinsurance
companies.
Reinsurance seller is
“Retrocessionaries”
Reinsurance buyer is “Retrocedant”
WAYS TO REINSURE
Pooled Reinsurance
Reciprocity
Subsidies
GENERAL INSURANCE
CORPORATION
The sole domestic reinsurance(GIC)
company of India
AAA+ Rating
Incorporated on 22 November 1972
Subsidiary companies of GIC
National Insurance Company Limited
The New India Assurance Company Limited
The Oriental Insurance Company Limited
United India Insurance Company Limit
GIC Asset Management to manage
GIC Mutual Fund
GIC Housing Finance
Export Credit Guarantee Corporation
Business Of GIC
Domestic Reinsurance Business(73% of the Revenues
GIC + Hannover Deal (60:40) – Life Insurance
International Reinsurance Business (27% of the Revenues)
Investment and Fund Management
REINSURANCE REGULATION IN INDIA
- IRDA
20% of each policy with reinsurance company
Inter-company cession between four public sector
companies.
First GIC and then International companies.
Insurance company to inform before 45 Days.
Not more than 10% of reinsurance premium to be placed
with one re-insurer.
No re-insurer will have a rating of less than BBB from
standard and poor
FINANCIAL RESULTS
In Rs. Crores 2008-2009 2007-2008 % Change
Net Profit 1407 992.7 41.75
Net Premium 7402.3 6750.8 18.71
Gross Premium 8061.13 7981.9 1.4
Solvency 3.67% 3.36% -
Margin
Net Incurred 6217.1 4582.95 35.65
Claims
Income from 1785.8 - -
Investment
Investments 21,714 - -
CLASS WISE EARNINGS FOR YEAR
2007-2008
Earned Premium: Incurred Claims:
CLASS WISE EARNINGS FOR YEAR
2007-2008
1. Misc
CHALLENGES FOR REINSURANCE
INDUSTRY IN INDIAN MARKET
Covers are not available for liability,
professional indemnities, financial risks,
oil and energy etc.
International competitors don’t quote
for small ticket deals
Premium rates are costlier as foreign
competitors quote more
Desirable quotes from the Indian
market are not available with
promptitude
Different dates of finalization of
accounts globally
Reinsurance cover for terrorist attacks
is still a debate
CASE STUDIES: CASE 1 – PREMIER
INSURANCE COMPANY IN GUJARAT
• Earthquake in 2001 followed by floods
• 600 Crores of losses
• Stop the business / receive help
• GIC to Rescue
• Socially being responsible by giving incentives and clearing out dues
CASE STUDIES: CASE 2 – REINSURANCE
ON TERRORISM
• WTC Attack
• Effect on Indian Industry
• What next???
• Pool – GIC, 4 Subsidiary & 6 Private companies
• 200 Crores Pool – Which is too less
• New development regarding this – Debate still on
The End
