explain the concept of reinsurance. Why is it so important?

Question

explain the concept of reinsurance. Why is it so important?

Answer 1

Reinsurance is the sharing or spreading of a risk too large for one insurer by ceding part of the risk to another company or reinsurer. For example, most companies place a limit on the amount of insurance they will risk on a single life; therefore, when issuing policies for larger amounts than their own limit, they cede the excess over that limit with a reinsurance company for a portion of the premium. In the Property and Casualty field an example would be the twin towers in NYC, no single company would have the financial capacity to insure such a large risk.



It is important because reinsurance enables a client to get coverage that would be too great for any one company to assume.

Answer 2

Importance Of Reinsurance

Answer 3

Reinsurance is insurance for insurance companies. An insurer can transfer part of their risk to another insurance company buy purchasing reinsurance. The company that purchases reinsurance is called the primary insurer, and the company that provides the reinsurance is called the reinsurer.



Reinsurance smoothes loss experience for the primary insurer. It can also increase the capacity of the primary insurer to issue more policies.

Answer 4

It helps insurers handle humongous losses. Basic example...1 insurer handles a 1 billion dollar building. The building gets destroyed...a 1 billion dollar loss is gonna hurt. So by having reinsurance on that building, the insurer may only take a hit for half that amount.

Answer 5

It spreads the risk. The first insurance company sends out portions to other companies. If there is no hurricane, they all make money. If there is a hurricane, they share the pain.

It is only important because it makes insurers braver..

Answer 6

methods of reinsurance