Reinsurance means by which an can protect itself against the risk of losses with other insurance companies Individuals and corporations obtain insurance policies to provide protection for various risks (hurricanes, earthquakes, lawsuits, collisions, sickness and death, etc ) Reinsurers, in turn, provide insurance to insurance companies It is a financial management tool. It is always behind the high quality insurance program or a complex commercial risk of any good insurer.
Reinsurance is a very specific sector in the sphere of insurance. A complex business, it allows insurers to cover their risks by ceding them to a reinsurer. In this context, the reinsurer is obliged to indemnify the "ceding company" in the event of a claim.
Reinsurance industries are maintaining upward surge all round growth, both in the domestic and global fronts in the last few years The untapped, both in life and non -life insurance, particularly in growing economies like India and chin a, is the center of attraction to leading players in insurance and reinsurance, thanks to globalizations and liberalizations of financial services particularly in last decades.
It is a tool of risk management. Mutual support and supplement each other in providing risk mitigation to the individuals and organizations at micro level and to the country. Reinsurance is instrument of risk transfer and risk financing. Reinsurance can be described as contract made between an insurance company(insurer) and a third party (reinsurer) where in the later will protect the former by paying losses sustained by it under the original contract of insurance, unlike primary insurance, the reinsurance mainly deals with catastrophic risk which are not only highly unpredictable but have the potential capacity to cause huge devastation thereby threatening the solvency of the insurance company
HOW DOES IT COMPARE TO COINSURANCE?
Some customers require two or more title companies to issue policies together as coinsurers, where each policy is issued to the Insured for a defined portion of the total purchase price or loan amount. Each policy will contain a provision, by exception or by endorsement, that the policy liability is limited to a specified percentage of any particular loss. One reason given is to obtain the benefit of multiple title examinations. The Insured receives no right to pursue any one Company for the policy liability of the other Company's policy. Coinsurance is very different than Reinsurance, so it is discussed in a separate section.
Reinsurance differs from coinsurance in that only the issuer has a direct contractual relationship with the insured. In the case of coinsurance, each coinsurer has direct contractual relationships with both the insured and the other coinsurers. No coinsurer is liable for any portion of the other coinsurer's policy liability. The coinsurers share the risk in proportions set by agreement. On large transactions, coinsurers may reinsure their share.
RISK RETENTION REQUIREMENTS
There is no upper limit on the size of real estate transactions, but there are, at least theoretical, limits to the capacity of any title insurer to assume large risks. As we have seen, title insurers protect themselves from catastrophic losses from "high liability transactions" by sharing large risks with other title insurers in reinsurance.
A "retention limit" is the maximum liability that a title insurer will retain on an individual transaction. Once the transaction passes the applicable retention limit, the title insurer must reinsure the liability in excess of the retention limit. Retention limits can be set by state insurance departments, by customers or by the title insurer itself. If two or all three set limits, the lowest limit applies to the transaction. Retention limits are a measure of the insurer's capacity to insure a transaction....
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