{"id":704,"date":"2023-02-08T12:56:34","date_gmt":"2023-02-08T12:56:34","guid":{"rendered":"https:\/\/ceowebltd.com\/blog\/?p=704"},"modified":"2023-02-08T12:56:34","modified_gmt":"2023-02-08T12:56:34","slug":"what-is-reinsurance","status":"publish","type":"post","link":"https:\/\/ceowebltd.com\/blog\/what-is-reinsurance\/","title":{"rendered":"What is Reinsurance"},"content":{"rendered":"<p><span data-preserver-spaces=\"true\">If an insurer starts reinsuring, it places part of the risks with another insurer:\u00a0<\/span><strong><span data-preserver-spaces=\"true\">the reinsurer.\u00a0<\/span><\/strong><span data-preserver-spaces=\"true\">A distinction is made here between proportional reinsurance (such as &#8216;quota share&#8217; and &#8216;surplus&#8217;) and non-proportional variants (which include &#8216;stop loss,&#8217; &#8216;excess,&#8217; and &#8216;aggregate XL&#8217;).<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/ceowebltd.com\/blog\/what-is-reinsurance\/#Okay_so_why_a_reinsurer\" title=\"Okay, so why a reinsurer?\">Okay, so why a reinsurer?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/ceowebltd.com\/blog\/what-is-reinsurance\/#Prefer_less_risk\" title=\"Prefer less risk\">Prefer less risk<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/ceowebltd.com\/blog\/what-is-reinsurance\/#Tailor-made_reinsurance\" title=\"Tailor-made reinsurance\">Tailor-made reinsurance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/ceowebltd.com\/blog\/what-is-reinsurance\/#Finally\" title=\"Finally\">Finally<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"Okay_so_why_a_reinsurer\"><\/span><span data-preserver-spaces=\"true\">Okay, so why a reinsurer?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Here&#8217;s the thing: a policyholder takes out insurance with an insurance company. This creates the inevitable risk for the insurance company that it will have to pay an amount to the policyholder in the event of damage. Small amounts are fine, but it can run high on the papers when everything is put together. By reinsuring itself, the insurer transfers the financial consequences to another insurer: the reinsurer. This not only allows the insurer to take out higher insured amounts, but reinsurance also prevents large fluctuations in its annual figures.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Prefer_less_risk\"><\/span><span data-preserver-spaces=\"true\">Prefer less risk<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">There are certain risks you would rather not bear alone. This applies to private individuals but certainly also to insurers. If an insurance company chooses to bear all risks, this could mean bankruptcy in the worst case. Even if an insurer has a (very) large buffer, reinsurance can still be a good idea. You also pay costs for such a buffer, which can easily exceed the costs of a reinsurance premium. Reinsurers also often provide a source of data and knowledge that the insurer can use for expansion or product development.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Tailor-made_reinsurance\"><\/span><span data-preserver-spaces=\"true\">Tailor-made reinsurance<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Every insurer has its own goals and reasons for wanting to take out reinsurance. Reinsurers offer tailor-made solutions for this.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Although reinsurers are occasionally tempted to use hip terminology, reinsurance can be roughly divided into a few categories:<\/span><\/p>\n<p><em><span data-preserver-spaces=\"true\">Quota share<\/span><\/em><\/p>\n<p><span data-preserver-spaces=\"true\">In a quota share\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/insurancenoon.com\/types-of-reinsurance\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">reinsurance\u00a0<\/span><\/a><span data-preserver-spaces=\"true\">contract, there is a split between the reinsurance and the insurer&#8217;s retention. For example, suppose an insurer chooses to insure 75 percent of the risk associated with the launch of a new product. In that case, the gross reinsurance premium is also 75 percent, and three-quarters of the claims can be passed on to the reinsurer.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Since one large claim quickly exceeds the total premium, a quota share for smaller insurers is most effective in limiting volatility (= a fancy word for &#8216;fluctuation of a price&#8217;).<\/span><\/p>\n<p><em><span data-preserver-spaces=\"true\">Surplus<\/span><\/em><\/p>\n<p><span data-preserver-spaces=\"true\">While smaller insurance companies with equally small portfolios often prefer quota share reinsurance, the larger parties prefer the surplus variant. Both involve proportional reinsurance (where a fixed percentage is considered), but surplus reinsurance goes one step further. The largest percentage is always reinsured with a surplus contract, but a certain amount is taken out for each property or policy. The following applies: the larger the amount for your account, the more can be reinsured.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Surplus reinsurance is often a good choice if an insurer with an extensive portfolio wants to limit claims volatility.\u00a0<\/span><\/p>\n<p><em><span data-preserver-spaces=\"true\">Stop loss<\/span><\/em><\/p>\n<p><span data-preserver-spaces=\"true\">Stop loss reinsurance is also particularly recommended for larger portfolios. The insurer limits its losses when a certain limit is reached. The amount of the total claims incurred by the insurer led to this. The reinsurer will reimburse the remainder if this amount exceeds the set limit of the annual premium earned. With this stop loss reinsurance, the insurer has to be patient: only after the end of an insurance year is it known what the total claims will be and what the reinsurer must pay out. But as they say, patience pays off.\u00a0<\/span><\/p>\n<p><em><span data-preserver-spaces=\"true\">Excess<\/span><\/em><\/p>\n<p><span data-preserver-spaces=\"true\">With an excess (also called loss or excess-of-loss) reinsurance, just like with the stop-loss variant, it is about an agreed limit. Up to this limit, the insurer bears the costs; above that, the reinsurer reimburses amounts up to an agreed maximum. Two forms can be distinguished here, the first of which is defined as &#8216;per event cover.&#8217; In this case, the compensation from the reinsurer is based on the loss that has arisen due to an event, such as a severe storm. The second form is called &#8216;per-risk cover&#8217; and looks at all individual claims.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">And then we have arrived at the last \u2013 with the hippest name \u2013: the aggregate XL reinsurance. You can think of this reinsurance as a kind of &#8216;collection box&#8217; in which all losses are collected and added up. As soon as this box overflows, the reinsurer will pay out. The insurer again determines which losses qualify for this; often, it concerns a combination of the previously mentioned &#8216;per event&#8217; and &#8216;per risk&#8217; losses.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Finally\"><\/span><span data-preserver-spaces=\"true\">Finally<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Well, a lot of information has been poured out on you in the last few paragraphs \u2013 hopefully, it has made you a little wiser. In conclusion, we would like to emphasize that the mentioned coverages do not have to stand alone but can also be combined. Reinsurers can help you with the right tailor-made package. Do not be too distracted by the abundance of hip terminology: all reinsurance can be traced back to the overview above. Good luck.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>If an insurer starts reinsuring, it places part of the risks with another insurer:\u00a0the reinsurer.\u00a0A distinction is made here between proportional reinsurance (such as &#8216;quota&#8230;<\/p>\n","protected":false},"author":71,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[146],"class_list":["post-704","post","type-post","status-publish","format-standard","hentry","category-tech","tag-what-is-reinsurance"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is Reinsurance - CEOweb Ltd. 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