Co-insurance and reinsurance as methods of increasing the financial...

Coinsurance and reinsurance as methods of increasing the financial stability of the insurer

As a result of the study of Chapter 5, the student must:

know

• Basic concepts of coinsurance and reinsurance;

• methods of increasing the financial stability of the insurance company;

• features and main advantages of co-insurance;

• reinsurance goals and objectives;

• the main methods and forms of reinsurance;

• features, advantages and disadvantages of various contracts of proportional and disproportionate reinsurance;

be able to

• analyze the position of the insurance company for reinsurance risk;

• calculate the premiums of the assignor and reinsurer under various reinsurance contracts - quota, excess of amounts, excess of losses and excess of loss ratio

• determine the possible losses of the assignor and reinsurer in the listed contracts of proportional and disproportionate reinsurance;

own

• the main terminology of coinsurance and reinsurance;

• the methodology for calculating the optimal level of self-deduction of the insurer;

• the main methods of choosing the best reinsurance contract for the assignor.

Our daily life and doing business are constantly accompanied by random dangers and risks. Simple people and companies to protect themselves from these risks and reduce their impact on their well-being, buy insurance policies and transfer part of the risk or all of the risk to insurance companies. Insurance companies also need such protection and do ego through co-insurance and reinsurance - a special independent direction of insurance. Reinsurance is also called "insurer insurance", and this definition very accurately conveys the essence of this process.

From the history of coinsurance and reinsurance

The coinsurance and reinsurance as directions of insurance activity arose in the Middle Ages practically simultaneously with commercial insurance (see Chapter 1). Their consistent emergence was a natural reaction of commercial insurance to the inability of one even the largest insurance company to insure very large risks.

The first known reinsurance contract was recorded in Genoa in 1370 between two traders who acted as reinsurers and a third trader who represented the interests of the direct insurer but insured the goods shipped by sea from Genoa to Bruges. With the development of trade relations and the growth of insurance began to grow and reinsurance, especially in Europe and the United States. In England, there was a unique association of insurers, acting on the basis of co-insurance principles - the famous Lloyd's of Lloyds ( Lloyd's of London), which later (since 1864) began to play a significant role in the market of reinsurance services . After co-insurance and reinsurance of shipping cargo, reinsurance against fire arose. At the beginning of the XIX century. The increased demand for reinsurance services related to industrial development in Europe was able to satisfy direct insurers with significant financial resources. Instead of individual contracts for reinsurance of major risks (see further facultative reinsurance), new types of contracts have emerged covering the entire set of risks (see further obligatory or compulsory reinsurance). The first such agreement dates back to 1821.

Soon the growth of demand for such services led to the need to create specialized companies that deal exclusively with reinsurance. The first independent company specializing only in reinsurance was established in Cologne under the personal order of the King of Prussia Frederick Wilhelm April 8, 1846 - Cologne Reinsurance Company ( Kolnische Ruckversicherungs-Geselischaft AG, or Cologne Re) , in 1863, the Swiss reinsurance company Swiss Re, emerged (as Cologne after the fire in Hamburg in 1842) in response to the fire in 1861 in Glarus. It became clear that insurance companies are not able to independently cope financially with major and catastrophic risks. In 1880, the Munich Reinsurance Society ( Munich Re) appeared. These professional reinsurers began to play a major role in the world market, which, by the way, is still being preserved. United States Reinsurance Society appeared in 1895, it was engaged in reinsurance of fire risks.

During the period after the creation of the first reinsurance societies, humanity passed through two world wars, many natural and man-made disasters and cataclysms, and their number and destructive power are steadily increasing year by year (Figure 5.1).

Along with this, the role of reinsurance is also growing as a reliable protection of the world insurance market and an effective financial instrument for redistribution of insurance risks. Recent natural disasters - hurricanes Katrin, Rita and Wilma (2005, 111 billion dollars), earthquake in Japan (2011, 54 billion dollars), hurricane Sandy (2012, 70 billion dollars), a terrorist act in the United States 2001, $ 30.8 billion) (Figure 5.2) caused the whole world to reconsider their attitude to insurance in general and reinsurance as a serious opportunity to save insurance markets from bankruptcy and the economies of countries from extraordinary losses.

The modern world reinsurance market has more than 200 companies, mostly professional reinsurers. Top-10 reinsurers of non-life collects about half of the world reinsurance premiums, and 10 leading reinsurance life insurance companies collect about 2/3 of all premiums. Germany, the US and Switzerland are the three countries that have been at the forefront of the reinsurance market for many years, from the moment

Dynamics of anthropogenic and natural disasters in 1970-2012

Fig. 5.1. Dynamics of anthropogenic and natural disasters for 1970-2012

Dynamics of losses insured from catastrophes for the years 1970-2012

Fig. 5.2. Dynamics of losses insured from catastrophes for 1970-2012

Table 5.1

10 professional reinsurance companies - world leaders (Top-10) (for total collected premiums for 2000-2011, USD million )

Ranking

2000

2006

2011

Company

Prizes

Company

Prizes

Company

Prizes

1

Munich Re (Germany)

14,956

Swiss Re (Switzerland)

26,014

Munich Re (Germany)

33,719

2

Swiss Re (Switzerland)

13 810

Munich Re (Germany)

24,526

Swiss Re (Switzerland)

28,664

3

Employers Re

8191

Berkshire Hathaway Re (incl Gen Re)

11,051

Hannover Re (Germany)

15,664

4

General Cologne Re (USA-Germany)

7685

Hannover Re (Germany)

8886

Berkshire Hathaway Re (incl Gen Re)

15 000

5

Hannover Re (Germany)

4803

SCOR (France)

4520

Lloyd's of London

13 621

6

Berkshire Hathaway Re

4724

Reinsurance Group of America (US)

4346

SCOR S.E. (France)

9845

7

Gerling Globale Re (Germany)

4028

Everest Re (Bermuda)

3853

Reinsurance Group of America Inc. (USA)

7704

8

SCOR (France)

2566

Partner Re (Bermuda)

3667

China Reinsurance (Group) Corporation (China)

6179

9

Zurich Re (Шцецария)

2485

Transatlantic Re (US)

3604

Partner Re (Bermuda)

4621

10

Lloyd's of London

1891

XL Re (Bermuda)

3151

Korean Reinsurance Company (Korea)

4551

the birth of reinsurance to this day. It is interesting to trace the changes in the top ten reinsurer leaders over the last decade (Table 5.1).

So, the market of coinsurance and reinsurance grows, develops and occupies an increasingly important place in the world economy. Let's consider the basic principles and concepts of coinsurance and reinsurance.

thematic pictures

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