Page 230 - Reinsurance Management IC85

The Insurance Times

appropriate to the business that they conduct.

The insurer, therefore, in the first instance plans
to conduct business relying upon premiums as
collected to pay all his losses. His back up when
losses exceed premiums is (1) reinsurance, and (2)
income from his investments

The above brings out the crucial role of reinsurance
in addressing the limitations to the law of large
numbers, preserving the income from investment and
insulating shareholders' funds from unpredictable loss
scenarios.

b) In practice a non-proportional treaty provides
that the cover would deplete or cease upon
payment of loss. It provides for automatic
restoration of limit of cover subject to mutually
agreed additional premium.The number of
reinstatements and the basis for additional
premium are subject to negotiation.

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