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Reinsurance is about transferring the risks of Insurance companies to third party organisations. This presentation focuses on the need, the types and the structures of reinsurance. Along with this, the paper also talks about the market in India.
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REINSURANCE IN INDIA
Presented By:
Rohit Ranganathan
WHAT IS REINSURANCE?
In simple terms reinsurance is insurance for insurance companies.
It is a means by which an insurance company can protect itself from risks.
The company who requests for the cover is called the cedant and the reinsurer is called the ceded.
Risk Transfer Greater individual risks than its size Offer higher limits of protection to a policyholder
Income Smoothing Absorbing larger losses
Surplus relief Solvency Margin
Arbitrage Price differential between two or more markets
Reinsurer’s Expertise
Manageable and Profitable Portfolio
Managing Cost of Capital Capital In terms of Reinsurance
WHY REINSURANCE
How Reinsurance Works
Transfer Of Risk
Risk TakersMiddle Persons
Insurance Policy
Holders
Insurance Companies
Reinsurance Companies
Agents
BrokersReinsurance
Intermediaries
TYPES OF REINSURANCE
There are two types of reinsurance: Facultative Treaty
Each type of reinsurance can be structured in one
of the following two ways:
Proportional Non Proportional
FACULTATIVE REINSURANCE Facultative reinsurance applies to an individual risk,
i.e., one commercial fire policy or even only one
location.
Insurer and reinsurer agree to the reinsurance terms
on each individual agreement.
It is generally used to reinsure:
a) Extra-hazardous or unusual risks which might be excluded from treaty reinsurance agreements.
b) High valued risks with policy limits exceeding maximum treaty parameters.
TREATY REINSURANCE
Applies to an insurance company’s entire book of business.
Some of these include all commercial fire polices, all automobile policies, all workers’ compensation policies, all homeowners policies, or, more generally, any combination of the above.
Treaty reinsurance is the one in which both pro-data and excess of loss forms are used.
PROPORTIONAL REINSURANCE One or more reinsurers take a stated percent share
of each policy that an insurer produces.
The reinsurer will receive the stated percentage of
each dollar of premiums and will pay that percentage
of each dollar of losses.
Example: Surplus share: Reinsurer assumes pro
rata responsibility for only that portion of any risk
which exceeds the company’s established retentions.
NON PROPORTIONAL REINSURANCE
This insurance responds when the loss suffered by the insurer exceeds a certain amount.
Example:
The insurer is prepared to accept a loss of $1 million for any
loss which may occur and they purchase a layer of reinsurance
of $4 million in excess of $1 million. If a loss of $3 million
occurs, then insurer will retain 1Million and will recover $2
million from its reinsurer(s).In this example, the reinsured
will retain any loss exceeding $5 million unless they have
purchased a further excess layer (second layer) of say $10
million excess of $5 million.
Reinsurance the Reinsurance companies. Reinsurance seller is “Retrocessionaries” Reinsurance buyer is “Retrocedant”
RETROCESSION
WAYS TO REINSURE
Pooled Reinsurance Reciprocity Subsidies
The sole domestic reinsurance company of India AAA+ Rating Incorporated on 22 November 1972 Subsidiary companies of GIC
National Insurance Company Limited The New India Assurance Company Limited The Oriental Insurance Company Limited United India Insurance Company Limit
GIC Asset Management to manage GIC Mutual Fund GIC Housing Finance Export Credit Guarantee Corporation
Business Of GIC Domestic Reinsurance Business(73% of the Revenues
GIC + Hannover Deal (60:40) – Life Insurance International Reinsurance Business (27% of the Revenues) Investment and Fund Management
GENERAL INSURANCE CORPORATION (GIC)
20% of each policy with reinsurance company
Inter-company cession between four public sector
companies.
First GIC and then International companies.
Insurance company to inform before 45 Days.
Not more than 10% of reinsurance premium to be placed
with one re-insurer.
No re-insurer will have a rating of less than BBB from
standard and poor
REINSURANCE REGULATION IN INDIA - IRDA
In Rs. Crores 2008-2009 2007-2008 % Change
Net Profit 1407 992.7 41.75
Net Premium 7402.3 6750.8 18.71
Gross Premium 8061.13 7981.9 1.4
Solvency Margin
3.67% 3.36% -
Net Incurred Claims
6217.1 4582.95 35.65
Income from Investment
1785.8 - -
Investments 21,714 - -
FINANCIAL RESULTS
CLASS WISE EARNINGS FOR YEAR 2007-2008
Earned Premium: Incurred Claims:
CLASS WISE EARNINGS FOR YEAR 2007-2008
1.Misc
Covers are not available for liability, professional indemnities, financial risks, oil and energy etc.
International competitors don’t quote for small ticket deals
Premium rates are costlier as foreign competitors quote more
Desirable quotes from the Indian market are not available with promptitude
Different dates of finalization of accounts globally
Reinsurance cover for terrorist attacks is still a debate
CHALLENGES FOR REINSURANCE INDUSTRY IN INDIAN MARKET
CASE STUDIES: CASE 1 – PREMIER INSURANCE COMPANY IN GUJARAT
CASE STUDIES: CASE 2 – REINSURANCE ON TERRORISM
•Earthquake in 2001 followed by floods•600 Crores of losses•Stop the business / receive help•GIC to Rescue•Socially being responsible by giving incentives and clearing out dues
•WTC Attack•Effect on Indian Industry•What next???•Pool – GIC, 4 Subsidiary & 6 Private companies•200 Crores Pool – Which is too less•New development regarding this – Debate still on