REINSURANCE

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REINSURANCE

• CLEARING THE FOG
• Presented by
• David L. Breckles Associates

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REINSURANCE

• Reinsurance is an arrangement between parties who
  assume risk.
• It is a means of distributing the risk to others.
• Reinsurance provides Capacity

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Development of Reinsurance

• There has always been a sharing of risk
• Between similar shipping/trading firms
• Individuals
• Subscription Policy (companies or individuals)
• Reinsurance in its present form is a relatively
  recent development (early 1900s with a
  significant expansion from 1960s).

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Development of Reinsurance Contd.

• Many organizations now share in reinsurance.
• Professional reinsurers
• Insurance companies
• Lloyds
• Corporations
• Governments

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Insurance Company Product Lines

• Not all insurance companies offer a complete
  portfolio of coverages for your exposures.
• In fact, the opposite is true.
• Insurance companies specialize in product lines
  where they believe they have an expertise and a
  greater than average opportunity to make a profit.

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Example University Insurance Program
Umbrella
650M
10M
50M
Umbrella 10M
20M
,
10M
5M
5M
5M
5M
5M
5M
5M
1M
Crime
Misc. Property
Kidnap Ransom
Property
Boiler Machinery
General Liability EO
Auto Owned
Non-Owned
Garage
Fine Arts
Cat. Accident
Travel Accident
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Types of Reinsurance

• There are probably several hundred different
  reinsurance plans in place at any given moment.
• No two reinsurance programs are identical.
• Reinsurance needs vary from company to company
  and change over time, depending on circumstances.

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Types of ReinsuranceContd.

• There are two types of reinsurance
• Proportional
• Premiums and losses are shared on an agreed
  ratio, i.e. 50/50
• Non-Proportional
• Losses are determined on the basis of the insurer
  keeping a certain amount, i.e. retention, and the
  reinsurer pays the balance, i.e. excess. The
  premium is calculated as a cost per 1,000 of
  capacity used.

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Types of ReinsuranceContd.

• The roles of reinsurance fall into four principal
  categories
• Finance
• Capacity
• Stabilization
• Catastrophe

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Types of ReinsuranceContd.

• The two main types of reinsurance used to provide
  coverage are
• Facultative
• Treaty

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Creation of a Reinsurance Program

• A treaty program is designed by the insurance
  company, the broker and the reinsurer.
• It is tailored to meet the specific needs of the
  insurance company.
• The reinsurer looks at
• Lines of Coverage
• Type of client
• Type of Exposure
• Capacity Required

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Creation of Reinsurance Program Contd.

• Pool of Premium Available
• Insurance Companys Financial Results
• Loss Ratios
• Reserves
• Methods of Evaluating risk
• Claims Handling Process
• Policy Wording
• Risk Management Philosophy
• Management

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Creation of Reinsurance Program Contd.

• The reinsurer also looks at
• Their Own Financial Results
• What the Market is Doing re
• Pricing
• Exclusions
• Is there a Good Opportunity for Profit?
• If the process answers these questions, the
  reinsurer will accept the proposal or offer an
  alternative.

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REINSURANCE IS AN ART NOT A SCIENCE