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✓Freeing up capital for new business –a reinsurance treaty can be

structured so that the amount of reserves that must necessarily be
held by a company can be reduced

✓Improvement in return on capital –a company overall

performance can be measured in many ways, including return on
capital.

✓Knowledge sharing –since most of the reinsurer operates with

their offices in many countries around the world, knowledge transfer
or sharing of resources proves to be very useful in the day to day
operation of an insurer.

✓Avoiding adverse selection –the reinsurer handles large
repositories of data of different types, and his data is used in more
than one ways this can be tracked by reinsurer even if the client

applies in India and does not make any disclosure of the fact.

✓Freeing up of reserves –since the risk is transferred from the
direct insurance company to the reinsurer, the insurer does not have

to keep a large amount in reserve to meet the financial obligations of
claim payouts.

✓Capital assistance –financial reinsurance is not associated with

the transfer of risk. However the reinsurance provides direct
insurance companies with capital when they need it.

3.2. Reinsurance treaty

This is an important agreement that is legally drafted and signed by

both parties the direct insurance company and the reinsurer. It

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