Page 274 - Ebook health insurance IC27
P. 274
The Insurance Times
Reinsurance business is generally placed through reinsurance brokers.
Reinsurance in simple terms means insurance for insurers
The primary insurers and the insurers generally enter into an agreement and fix a limit for
various risks. Once the amount of loss increases the limit the reinsurers comes into
picture. There may be different forms of treaties and agreements.
Advantages of Reinsurance
The ultimate goal of that program is to reduce their exposure to loss by passing the
exposure to loss to a reinsurer or a group of reinsurers. Therefore, they are 'transferring
some of the risk to the reinsurer or a group of reinsurers'.
Risk transfer
With reinsurance, the insurer can issue policies with higher limits than it would otherwise
be allowed, therefore being permitted to take on more risk because some of that risk is
now transferred to the reinsurer.
Income smoothing
Reinsurance can help to make an insurance company's results more predictable by
absorbing larger losses and reducing the amount of capital needed to provide coverage.
The risk factor is diversified with the reinsurer bearing some of the loss incurred.
Surplus relief
An insurance company's writings are limited by its balance sheet (this test is known as
the solvency margin). When that limit is reached, an insurer can do one of the following:
stop writing new business, increase its capital, or buy "surplus relief"
278 Guide for Health Insurance