What is re-insurance and what are its benefits

If any insured contents or property is re-insured by the insurer, it is called reinsurance or reinsurance.  Reinsurance business is spread worldwide on an international basis.

 As we know, the insurance company bears the risk of the insured contents (life) or property, but it does not bear all the risks alone.  When he feels that he will take as much risk as he can bear, he enters into a reinsurance contract with another reinsurance company.

 So reinsurance is a part of the insurance risk accepted by an insurance company (up to the retention limit) and the remaining part is assigned or transferred to another insurance company.  Here the insurance company that transfers its excess risk is called the ceding company and the insurance company that accepts the risk is called the reinsurance company.

 Irrespective of the size or fund of the insurance company, most of the insurance companies have to take advantage of reinsurance, some of the reasons are mentioned below:

 A.  An insurance company has very limited assets at the start of its business, yet the insurance company has to bear unlimited risk even with these limited assets.  Insurance companies are only able to bear this unlimited risk through reinsurance.

 b.  Insurers/insurance companies may limit their own liability.

 c.  Insurance helps the company to cover the financial loss within its capacity.

 d.  Reinsurance helps the insurance company to keep its business stable.

 e.  Reinsurance helps small insurance companies enter and compete in larger insurance markets.

 f.  Reinsurance also helps insurance companies gain experience in risk management and risk management.