Page 163 - Fire Insurance Ebook IC 57

The Insurance Times

The objects of reinsurance are:-

a) Limitation of liability to an amount which is proportionate to their
finances is made possible for insurers.

b) It makes for stability in underwriting and consistency in
underwriting results over a period.

c) It provides a safeguard against serious effects of conflagrations.
d) A sound system of retentions and reinsurance assists in the steady

accumulation of reserves.
e) Creates an automatic capacity to accept large risks.

Main methods or reinsurance :

(a) Facultative and
(b) Treaty.

Facultative reinsurance

n In facultative method each risk is reinsured individually.
n The reinsurer to whom the risk is offered has the choice or the

faculty of either accepting or rejecting the risk.
n This method involves considerable amount of clerical work and

has been largely replaced by the treaty method.
n However, facultative method is still used to supplement the treaty

facilities.

Treaty reinsurance

Under treaty reinsurance instead of offering each risk individually
there is an agreement between the insurer and the reinsurer wherein
all the risk during a particular period will be accepted by the reinsurer.

Website: www.bimabazaar.com Call: 033-22184184 / 40078428 176

Copyright@ The Insurance Times. 09883398055 / 09883380339