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1/10 M97/February 2018 Reinsurance
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Chapter

Like insurance companies, a Takaful company has a need for sound reinsurance arrangements. In this
system, reinsurance is known as reTakaful. In situations where the provision of reTakaful is inadequate
to meet the needs of Takaful operators, the rules of Shariah law may allow them to deal with
conventional reinsurers.

B6 Captive insurance companies
Changing risk management practices have resulted in more risks being retained by organisations rather
More risks being
retained by than being passed on to insurers. A key mechanism in this shift has been the captive insurer: a
organisations risk-bearing entity controlled or owned by an organisation whose primary business is not that of
insurance. The captive is then in the same position of needing reinsurance for all of the reasons that a
primary insurer would have, namely those listed in section A.
Refer to chapter 9, There are isolated instances where an insurance entity enjoys a relationship by ownership with a
section C for more
on captives ‘captive’, although this is rare.
In recent years, the number of captive insurance companies in existence has grown significantly, with
specialised regional bases being developed to support their operation, for example, Dublin, Luxembourg
and Bermuda. Along with other ART mechanisms, captives have greatly altered the make-up of the
insurance industry landscape.
Activity
Research recent developments in the captive insurance industry and the likely impact of Brexit. You could use the
following websites as starting points: www.cii.co.uk/knowledge and www.lloyds.com.

B7 Mutual insurance companies

Although they have largely disappeared from the insurance arena, passing mention should be made of
Mutual insurance
companies are owned mutual insurance companies which are owned by their policyholders, who share in the profits of the
by their policyholders company by means of lower premiums or preferential cover. In theory, the policyholders are liable for
losses made by the company; in reality, mutuals are limited by guarantee. This means that the maximum Reference copy for CII Face to Face Training
liability of a policyholder is usually limited to the premium paid. Over the years many mutual have
become proprietary companies as a result of the process known as demutualisation.

B8 Reinsurance companies
The term ‘professional reinsurance company’ is used to describe those companies that only underwrite
reinsurance business. As specialist sellers of reinsurance, they obtain business through brokers in
addition to establishing direct relationships with their clients.
Refer to chapter 2, These professional reinsurers need to buy reinsurance protection, known as retrocession, for their own
section B for
retrocession accounts, to provide for liabilities in excess of their own underwriting capacity and so protect
themselves against potentially crippling losses.

Consider this…
Can you think of two companies that could accurately fall under the heading of ‘professional reinsurers’?

B9 Reinsurance pools

Reinsurance pools have been formed on both a national and a regional basis to handle particular types
of reinsurance. Pools are multi-reinsurer agreements under which each reinsurer in the pool assumes a
specified portion of each risk ceded to the pool. They buy reinsurance as a means of protecting their
trading results.

Reinforce
Before you move on, make sure you know the reason why each of the groups of buyers listed above would want to
purchase reinsurance.