Page 338 - Misc Ebook IC 78

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Q3.b) What is the difference between Coinsurance
and Reinsurance ?

Ans. Reinsurance serves to underwrite the risk liability of an
insurer more or less in the same way as insurance, to
indemnify the insured with respect to his interest. The
basic underlying principle is one of spreading risk. Re-
insurance fulfills this purpose by allowing the insurer to
restrict the size of his commitment so as to limit his
maximum loss on the risk to an amount which he can
pay without disturbing his finances.

The maximum amount of risk which an insurer keeps
on his own account is called retention of the insurer
with respect to the risk. The factors which govern the
determination of this limit are:
(a) the nature of risk

(b) location of the risk

(c) nature of the perils covered

(d) the insurer's capacity to bear the loss to bear the
loss without disturbing his finances and

(e) whether the number of risks identical to the risk

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