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Foundations of Casualty Actuarial Science

individual/entities because their costs are more
predictable and the constant flow of new funds
makes it less likely that they will have to liquidate
investments to pay for losses.

Q14. What are the risk financing options available
for an insurer?

Ans. An insurer accepts the financial responsibility for losses
arising from exposures to possible loss owned by other
entities. It can choose to retain that responsibility,,
transfer it to another insurer, pool it with other insurers,
or do some combination of these.

For e.g, an insurer provides a property policy of Rs.
25,00,000 limit to an entity. The insurer might find another
insurer, or a reinsurer, willing to take the layer from
Rs.1,00,000 to Rs. 10,00,000 for part of the premium
originally paid by the insured.

The insurer then might put the layer from Rs.10,00,000
to Rs.25,00,000, into a pool of similar exposures from
other insurers, in lieu of the premium. Since the risk

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