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Chapter 1 Purpose of and the parties involved in reinsurance 1/9 Chapter

B3 State-owned insurance corporations 1
Many countries have established state-owned insurance corporations, especially (but not only) those
with emerging economies and insurance markets. These corporations may be granted a 100% monopoly
of all insurance business; they may receive a compulsory cession of reinsurance from all the local
insurance companies or be the insurer for all organisations and enterprises in which their government
has an interest while competing with other insurers for any remaining business. Others may receive no
special privileges and have to compete for business like any other private company. Therefore, the
reinsurance needs of state-owned insurance corporations reflect their market status. Examples of state-
owned insurers in major economies are the General Insurance Corporation of India and the People’s
Insurance Company of China.

Useful websites
www.gicofindia.com
www.picchk.com/brief_e.html

A monopoly state-owned insurance corporation is usually required to meet all of its country’s insurance
Required to meet all
needs, including cover for such entities as state air and shipping lines. Consequently, it requires of its country’s
extensive reinsurance facilities to provide the underwriting capacity for such large risks. insurance needs
Natural hazards and the associated accumulation of liability are another significant problem for state-
owned insurance corporations. Although they may have been formed to reduce a country’s dependence
on foreign insurers, state-owned insurance corporations will need to reinsure a substantial part of these
liabilities in the international markets and will frequently use international reinsurance brokers to
arrange and place their reinsurance programmes.

B4 Regional insurance corporations
Regional insurance corporations operate in a similar way to state-owned insurance corporations and are
most prevalent in areas where individual states are united by close political and cultural bonds. Reference copy for CII Face to Face Training

Example 1.2
Africa Re was established by 36 African member states to transact treaty and facultative reinsurance cessions. It
buys reinsurance cover to protect its property and casualty, plus life and health interests.

They are characterised by a common desire to retain premiums within the region and a belief that local
investment should help local economies, rather than act as a feeder for overseas economies that are
already at advanced stages of development. Problems may occur as a result of a lack of local
management and underwriting expertise. Furthermore, in the absence of a wider spread of risk,
accumulations may lead to severe economic problems in the event of a natural catastrophe.

B5 Takaful companies
Takaful insurance is an Islamic insurance concept which observes the rules and regulations of Islamic
Takaful observes the
law. ‘Takaful’ is an Arabic word meaning ‘guaranteeing each other’. This system is based on mutual rules and regulations
cooperation, shared responsibility, joint indemnity, common interest and solidarity between groups of of Islamic law
participants.
Takaful has come into prominence in recent years in the Muslim world because traditional insurance has
some features that are at variance with certain essential values of a financial contract in Islam. It is,
therefore, an alternative means of obtaining protection with similarities to mutual insurance whereby
Muslims can avail themselves of cover against the risk of loss. Policyholders avoid gambling on the
fortunes or misfortunes of others as money is paid into a communal fund and those participating take
out what they need in the event of a claim. Insurance companies charge a fee for managing the fund and
any monies left over at the end of the year, after payment of claims and business expenses are
distributed to policyholders. Policies have to be carefully worded so that no cover is included for items
contrary to the teachings of Islam and are approved by Islamic scholars and Shariah advisory
committees during the development process, to ensure that they are compliant.

The potential market for products developed to meet the needs of those with specific religious
preferences is vast.