Reinsurance is a risk management tool for insurance companies, allowing them to share and mitigate risks. It includes various types of coverage such as facultative and treaty reinsurance, with distinct mechanisms for sharing premiums and losses based on specific agreements. The reinsurance market in India has evolved from foreign dependencies to a regulated domestic system under the IRDA, allowing for greater participation from global reinsurers.

1. PREPARED BY- OMPRAKASH SAH

2. Reinsurance is insurance that is purchased by an insurance
company 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.

3.  The reinsurer may be either a specialist reinsurance
company, which only undertakes reinsurance
business, or another insurance company. Insurance
companies that sell reinsurance refer to the business
as 'assumed reinsurance'.
 A healthy reinsurance marketplace helps to ensure
that insurance companies can remain solvent
(financially viable), particularly after a major
disaster such as a major hurricane, because the risks
and costs are spread.

5. ACE Tempest Reinsurance Ltd.
Argo Group
Axis Capital
Berkshire Hathaway Reinsurance Group
Endurance Specialty Holdings Ltd.
Everest Re Group
Glacier Group
Hannover Re Group
Korean Re
Lloyd’s of London

6. Functionsof Reinsurance
Whether setting up a captive or managing ongoing operations,
captive owners and risk managers purchase reinsurance to serve a
number of different functions. Some of the functions of
reinsurance include:
Stabilization of profitability
Provides large limit capacity
Catastrophe protection
Supports high growth in premium volume
Provides help with the underwriting process
Facilitates withdrawal from a particular risk or line of
business.

7. Stabilization of profitability: As captive owners and risk managers know,
losses incurred sometimes fluctuate widely from year to year. Large swings in losses
incurred can make it difficult, if not impossible, to forecast profitability of a
particular line of business, or in total. While showing profitability in a pure captive
may not be as critical as it is to say, a risk retention group or commercial insurer, most
business owners like to see a reasonably steady flow of profits to protect their capital
and surplus and to support growth, if necessary. Purchasing reinsurance is
particularly helpful in smoothing the peaks and valleys of a captives loss experience,
as generally the law of large numbers doesn't apply to captive operations
Provides large limit capacity: Captives frequently provide a high limit of
insurance on one or a limited number of policies. For example, a hospital captive may
wish to insure the excess professional liability exposure of its parent. A captives
capacity for retaining such coverage is limited by capital and surplus, regulatory and
other factors. Partnering with a reinsurer to accept a particularly high risk allows the
captive to provide lines of coverage and limits that would otherwise not be feasible.
Catastrophe protection: Captives insure property-liability coverages
which are frequently concentrated in geographic or economic regions. Catastrophic
exposures such as hurricanes, industrial explosions or the like can tremendously
effect loss experience. Purchasing "cat" coverage is therefore also related to the
stabilization function described above.

8. Supports high growth in premium volume: As with any business, new
endeavors are particularly risky. As a company enters into a new line of business,
geographic region, or adds significant premium volume, it may wish to purchase
some kind of reinsurance. Risk retention groups, in particular, may wish to temper
the risk of accepting large increases in premium volume, as their writings are
generally more sensitive to market forces than pure captives.
Provides help with the underwriting process: Partnering with a
reinsurer can greatly improve a captive's ability to accurately underwrite a risk.
Reinsurers accumulate vast underwriting knowledge working with large numbers of
primary insurers across a wide variety of business lines. This expertise can be
particularly helpful to captive insurers who generally have limited in-house
underwriting capacity.
Facilitate withdrawal from a particular risk or line of
business: For a variety of reasons, a captive may decide to withdraw entirely from
a particular risk or line of business. Once a decision is made to withdraw,
management frequently enter into agreements with reinsurers to accept all
outstanding loss and loss expense reserves associated with that book of business, at
an agreed upon price.

10. Reinsurance is basically a form of coverage intended for insurance providers.
Generally speaking, this type of policy reduces the losses sustained by insurance
companies by allowing them to recover all, or part, of the amounts they pay to
claimants. Reinsurers help insurance providers avoid financial ruin in case a huge
number of policyholders turn out to make their claims during catastrophic events.
Below are some of the major types of reinsurance policies.
1. Facultative Coverage
This type of policy protects an insurance provider only for an individual, or a
specified risk, or contract. If there are several risks or contracts that needed to be
reinsured, each one must be negotiated separately. The reinsurer has all the right to
accept or deny a facultative reinsurance proposal.
2. Reinsurance Treaty
Unlike a facultative policy, a treaty type of coverage is in effect for a specified period
of time, rather than on a per risk, or contract basis. For the duration of the contract,
the reinsurer agrees to cover all or a portion of the risks that may be incurred by the
insurance company being covered.

11. 3. Proportional Reinsurance
Under this type of coverage, the reinsurer will receive a prorated share of the
premiums of all the policies sold by the insurance company being covered.
Consequently, when claims are made, the reinsurer will also bear a portion
of the losses. The proportion of the premiums and losses that will be shared
by the reinsurer will be based on an agreed percentage. In a proportional
coverage, the reinsurance company will also reimburse the insurance
company for all processing, business acquisition and writing costs. Also
known as ceding commission, such costs may be paid to the insurance
company upfront.
4. Non-proportional Reinsurance
In a non-proportional type of coverage, the reinsurer will only get involved if
the insurance company’s losses exceed a specified amount, which is referred
to as priority or retention limit. Hence, the reinsurer does not have a
proportional share in the premiums and losses of the insurance provider. The
priority or retention limit may be based on a single type of risk or an entire
business category.

12. 5. Excess-of-LossReinsurance
This is actually a form of non-proportional coverage. The reinsurer will only
cover the losses that exceed the insurance company’s retained limit.
However, what makes this type of contract unique is that it is typically
applied to catastrophic events. It can cover the insurance company either on
a per occurrence basis or for all the cumulative losses within a specified
period.
6. Risk-Attaching Reinsurance
Under this type of contract, all policy claims that are established during the
effective period of the reinsurance coverage will be covered, regardless of
whether the losses occurred outside the coverage period. Conversely, no
coverage will be given on claims that originate outside the coverage period,
even if the losses occurred while the reinsurance contract is in effect.
7. Loss-occurringCoverage
This is a type of treaty coverage where the insurance company can claim all
losses that occur during the reinsurance contract period. The important factor
to consider is when the losses have occurred and not when the claims have

14. REINSURANCE BEFORE NATIONALIZATION In India, the period from 1951 onwards
was marked by a rapid growth of insurance business; this was because of large scale
economic development in the country during the period. The increased insurance
business required the reinsurance protection. At that time reinsurance was arranged
from the foreign markets mainly British and Continental. In 1956, Indian Reinsurance
Corporation, a professional reinsurance company was formed by general insurers
operating in India and it started receiving voluntary quota share cessions from
member companies.
REINSURANCE AFTER NATIONALIZATION At the time of Nationalization
of general insurance business in 1971, there were 63 domestic insurers and 44 foreign
insurers operating in country and each company had its own reinsurance agreements. In
1973 these companies were reconstituted into four companies. They are:
1. National Insurance Company
Limited

15. 2. The New India Assurance Company Limited
3. Oriental Insurance Company Limited
4. United India Insurance company Limited
 REINSURANCE AFTER AND LIBERALIZATION As a part of the
process of liberalization of the insurance industry in India, the Indian
Regulatory and Development of India (IRDA) was given the authority of
regulating and controlling the conduct of insurance business in India. IRDA
frames rules and regulations for various aspects of the Insurance business
including reinsurance. The current regulations relevant to reinsurance are
attached as an Appendix II at the end of this thesis. The four subsidiaries viz.
National Insurance Company Limited, The New India Assurance Company
Limited, Oriental Insurance Company Limited, United India insurance
company Limited, have been delinked form GIC and private insurance
companies have been allowed to do insurance business after obtaining license
from IRDA. Each insurer in India is free to structure his annual reinsurance
program in compliance with regulation and solvency requirement. The
programmed would need to be approved by the IRDA.

19. Global reinsurers: like Munich Re, Swiss Re, Lloyd’s,
Hannover Re and SCOR have indicated that they are waiting for the new
regulations to be unveiled by the Indian insurance regulator IRDA to open
branch offices in the country. Swiss Re is planning to open branch office and
has started discussion with the IRDA on the entry plan. “We are ready. We are
having discussions with the Indian government and other state governments
on what we can do directly with the governments themselves,’’ said Michel M
Liès, Group chief executive, Swiss Re.
IRDA is expected to frame guidelines to facilitate the entry of foreign players
into the reinsurance business in the wake of the new Insurance Bill passed by
Parliament last week. Victor Peignet, chief executive officer, SCOR Global
P&C SE said that he was encouraged to learn about the new development and,
subject to the detailed regulations, hope to have a branch office in the country
for conducting reinsurance business.

21. Rank Company
Net Premiums
($ billions)
1 Munich Re 24,218
2 Swiss Re 23,202
3 Berkshire Hathaway Re 11,577
4 Hannover Re 8,907
5 Lloyd's of London 7,950
6 SCOR 6,948
7 Everest Re Group 3,875
8 PartnerRe 3,689
9 Transatlantic Holdings 3,633
10 ACE Tempest Reinsurance 3,405