Page 180 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

(iii) Provides safeguard against serious effects of
conflagrations.

(iv) Assisting steady accumulation of reserves by
building a sound system of retention and reinsurance.

(v) Creates an automatic capacity to accept large risks.

Q5. What is reinsurance? Outline the types of
treaties.

Ans. Reinsurance is an arrangement whereby an insurer who
has insured a risk again insures ( or re-insures) a part of
the risk to another insurer (re-insurer) to diminish/manage
his liability. The amount reinsured is the difference
between risk accepted and risk amount retained.

There are two types of reinsurance :
(a) Facultative- here the risk is measured and reinsured

individually. The reinsurer exercises his choice /
faculty of accepting(part/full) risk or rejecting the
offer. This method involves large amount of clerical
work, so has been replaced by Treaty method unless
necessary as a supplement to treaty.
(b) Treaty - this method is again of two types (i)

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