What is Reinsurance?
Reinsurance is the practice where an insurance company (called the ceding company or primary insurer) transfers some of its risk to another insurance company (called the reinsurer) in exchange for a portion of the premium. This helps the primary insurer reduce the financial impact of large or catastrophic losses and allows them to take on more business than they could safely manage alone.
Why Reinsurance :
Risk Management – It limits the losses an insurance company might face.
Capacity Increase – Allows insurers to underwrite more or larger policies.
Financial Stability – Smooths earnings by absorbing major losses.
Capital Relief – Helps meet regulatory or solvency requirements
1. Facultative Reinsurance
2. Treaty Reinsurance
2. Treaty Reinsurance
Definition: Reinsurance for a specific, individual risk.
Negotiation: Each risk is separately underwritten and accepted (or rejected) by the reinsurer.
Use Case: Usually applied to large, unusual, or high-value risks (e.g., a skyscraper, a stadium, or a satellite).
Negotiation: Each risk is separately underwritten and accepted (or rejected) by the reinsurer.
Use Case: Usually applied to large, unusual, or high-value risks (e.g., a skyscraper, a stadium, or a satellite).
Definition: Reinsurance that covers a group or portfolio of risks under a standing agreement.
Negotiation: The terms are agreed upon in advance, and the reinsurer automatically accepts all risks that fall under the treaty.
Use Case: Common for standard risks like auto, life, or homeowner policies.
Negotiation: The terms are agreed upon in advance, and the reinsurer automatically accepts all risks that fall under the treaty.
Use Case: Common for standard risks like auto, life, or homeowner policies.
1. Proportional Reinsurance(Pro Rata)
2. Non-Proportional Reinsurance(Excess of Loss)
2. Non-Proportional Reinsurance(Excess of Loss)
How It Works: The reinsurer and the insurer share premiums and losses in agreed proportions.
Types:
Quota Share – A fixed percentage of every policy is shared (e.g., 30% to reinsurer).
Surplus Share – The insurer retains risks up to a set limit (retention), and anything above that is ceded to the reinsurer.
Types:
Quota Share – A fixed percentage of every policy is shared (e.g., 30% to reinsurer).
Surplus Share – The insurer retains risks up to a set limit (retention), and anything above that is ceded to the reinsurer.
How It Works: The reinsurer covers losses only above a specified threshold (retention limit).
Types:
Per Risk Excess of Loss – Covers large losses on individual policies.
Per Event/Occurrence Excess of Loss (Catastrophe Cover) – Covers aggregate losses from events like earthquakes or hurricanes.
Aggregate Excess of Loss – Covers when total losses exceed a certain amount in a year.
Types:
Per Risk Excess of Loss – Covers large losses on individual policies.
Per Event/Occurrence Excess of Loss (Catastrophe Cover) – Covers aggregate losses from events like earthquakes or hurricanes.
Aggregate Excess of Loss – Covers when total losses exceed a certain amount in a year.
Head office address:
Ack Garden Hse, 1st Ngong Avenue,
P.O. Box 28281-00200,
Nairobi, Kenya.
Nairobi, Kenya.
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