Professional Documents
Culture Documents
GIC Re
Risk Management
Avoidance
Prevention
Control
Acceptance
Transfer
Spread
GIC Re
Coinsurance Relationship
Risk
Insurer1
Insurer2
Insurer3
GIC Re
Reinsurance Relationship
Insured
Insurer
Reinsurer1
Reinsurer2
GIC Re
Reinsurer3
Reinsurance Relationship
Insured has relationship only with insurer
Insured is not party to the reinsurance
contract
If any of the reinsurers do not pay their
share of the claim, insurer must still
indemnify the insured
GIC Re
Reinsurance - Definition
Mr. Robert Kiln
insuring insurers
Dr. F. L. Tuma
Mechanism used by an insurance company to
reduce possible losses from risks accepted
Reinsurance does not reduce losses, but
gives insurance companies the strength to
withstand losses
GIC Re
What is Reinsurance
Insurance of Insurance
Risk transfer from Insurance Company to
Reinsurance Company
Spreading of risk
Smoothening Peaks & Troughs
Acts like a shock absorber in cars
GIC Re
Effect of claims
Large individual claims
Frequent sizable claims
Unexpected accumulation of claims /
Aggregations over a period
GIC Re
Reinsurance - Functions
Protection
Increase in capacity
Financial stability
Stabilizing claims ratio
Spread of risks
Protection of solvency margins
Improve profitability
Expertise
GIC Re
Reinsurance - Advantages
Increased capacity
Ability to accept larger shares
Spread of risk to other markets
Stabilizing operating results
Improves the insurance market
GIC Re
Historical Developments
Originally associated with ships & cargoes
300 BC loans on maritime venture
916 BC law passed in Rhodes, defining
general average
1347 earliest marine policy
1370 Earliest record of marine
reinsurance
GIC Re
Historical Developments
1666 Great Fire of London led to the
emergence of many insurance companies
1601 Act concerning matters of
assurance passed in England
1650 initial formation of Lloyds
GIC Re
Reinsurance Market
Buyers of Reinsurance
Direct Insurance Companies
State Insurance Corporations
Lloyds Syndicates
Reinsurance Companies
Insurance Pools
GIC Re
Reinsurance Market
Sellers of Reinsurance
Professional Reinsurance Companies
Lloyds Syndicates
Direct Insurance Companies
National Reinsurance Companies
Regional Reinsurance Corporation
Reinsurance Pools
GIC Re
World Markets
Top 15 Global Reinsurance Groups (NWP)
Rank
1.
2.
3.
4.
5.
6.
Company
Munich Re
Swiss Re
Hannover Re
Berkshire Hathaway Re
Lloyds
SCOR
GIC Re
Country
Germany
Switzerland
Germany
USA
UK
France
World Markets
Top 15 Global Reinsurance Groups (contd.)
Rank
7.
8.
9.
10.
11.
12.
12.
Company
Reinsurance Group of America
China Re
Partner Re
Korean Re
Everest Re
Transatlantic Holdings Inc.
Tokio Marine
GIC Re
Country
USA
China
Bermuda
Korea
Bermuda
USA
Japan
Retention
Risk Retention : Amount a company is
willing to put at stake for its own account
when underwriting risks
Loss Retention : Maximum amount a
company is prepared to pay on any loss
affecting a policy, risk or group of risks.
GIC Re
Treaty
Proportional
NonProportional
Facultative
Proportional
GIC Re
NonProportional
Treaty
Facultative
GIC Re
Facultative Slip
Name of Cedant
Name of Assured
Risk Details location, occupancy, age
Period of cover
Perils covered
Basis of UnderwritingPML/TSI/Loss Limit
Sum Insured with break up
Rate charged for all sections
GIC Re
Facultative Slip
Deductibles
Total Premium
Total Deductions commission, brokerage
& taxes
Past experience
Cedants retention
FAC order available
Survey report
GIC Re
Proportional Treaties
GIC Re
Quota Share
50% QS with a gross limit of Rs. 100 crore
Net retention will be Rs. 50 crores
QS treaty will be Rs. 50 crores
If QS percentage is 80%, then ?
If 40% QS with limit of 200 crores, then ?
GIC Re
Surplus Treaty
Amount surplus after gross retention (net +
quota share) is ceded
Placed in terms of lines
Reinsured decides table of retentions
Maximum gross limit need not always be
taken for each risk
Used to add automatic capacity
Normally one, but sometimes two or three
GIC Re
Surplus Treaty
Gross Retention is Rs. 10 crores
Surplus Treaty with 15 lines
Surplus Treaty limit = ?
Net retention 15 crores, QS is 40%
Cedant wants automatic capacity to cover
risks upto 150 crores, so how many lines?
GIC Re
Ceding Co.
Treaty Type
Period
Scope of Business
Territorial Scope
Retention
No. of Lines
Treaty Limit
GIC Re
Commission
Profit Commission
Accounts Settlement
Premium Reserves
Loss Reserves
Premium Portfolio Transfer
Loss Portfolio Transfer
Exclusions
GIC Re
GIC Re
Example
Example solved
Underwriting (Total premium 60,00,000)
Arrangement
Amount
share premium
Net retention
10 crores
2%
1,20,000
QS Treaty
10 crores
2%
1,20,000
Surplus Treaty
400 crores
80%
48,00,000
FAC
80 crores
16%
9,60,000
Total
500 crores
100%
60,00,000
GIC Re
Example solved
Loss (120 crores)
Arrangement
Net retention
share
2%
Loss
2.4 crores
QS Treaty
Surplus Treaty
FAC
Total
2%
80%
16%
100%
2.4 crores
96 crores
19.2 crores
120 crores
GIC Re
Non-Proportional Treaty
Distribution of Loss Liability
Cedant agrees to retain a loss upto a
certain amount called as deductible,
underlying or priority
Reinsurer agrees to pay the excess loss,
upto a specified amount
Normally split into various layers
GIC Re
XL Treaties
The Excess of Loss contract provides a cap
or ceiling to the loss ratio, provided that
adequate levels of cover have been
bought.
Naturally, there is always a risk from the
reinsureds perspective that the deductible
may be set too high, or that the cover
proves to be inadequate in the event of a
worse than expected catastrophic year.
GIC Re
GIC Re
Layering
In XL treaties, it is desirable to arrange the
programme in two or more layers; the first
or lower ones being the working layers,
with the subsequent ones regarded as
catastrophe layers / upper layers.
This will ensure better pricing from the
reinsurers, especially for the higher layers
and also ensure better participation from
reinsurers, depending on risk appetite
GIC Re
Non-Proportional Treaty
Two main types
Risk Excess of Loss
Event Excess of Loss
Other types
stop loss
umbrella xl
GIC Re
GIC Re
Risk / CAT XL
The XL treaty limits and deductible will be
expressed in amount as under :
10 crores each and every risk / event
In excess of
5 crores each and every risk / event
GIC Re
Stop Loss
E.g. 20% loss ratio in excess of 110% loss
ratio
or, 20% GNPI xs 110% GNPI
This is usually in conjunction with actual
monetary limits, to ensure that exposures do not
go up unchecked
Alternatively, the same limits could be given as:
To pay all losses in excess of a loss ratio of
110% up to a further 20% loss ratio
GIC Re
Non-Prop Treaties
Risk Attaching basis
Reinsurers assume liability in respect of
original policies issued or renewed during
the period of treaty
Loss Occurring during
Reinsurer assumes liability for claims
arising where date of loss falls within the
treaty period, irrespective of the date of
the underlying policies
GIC Re
Net retention 2%
50% QS Treaty 2%
Surplus Treaty 80%
FAC 16%
GIC Re
- 2.4 crores
- 2.4 crores
- 96 crores
- 19.2 crores
Example solved
Underwriting (Total premium 60,00,000)
Arrangement
Amount
share premium
Net retention
10 crores
2%
1,20,000
QS Treaty
10 crores
2%
1,20,000
Surplus Treaty
400 crores
80%
48,00,000
FAC
80 crores
16%
9,60,000
Total
500 crores
100%
60,00,000
GIC Re
Example solved
Risk XL (to protect net retention)
9 crores XS 1 crore
share
2%
2%
80%
16%
100%
Loss
2.4 crores
2.4 crores
96 crores
19.2 crores
120 crores
GIC Re
Event XL layers
Non-Proportional Slip
Ceding Company
Period
Type of Contract
Class of Business
Territorial Scope
Cover Limit
Deductible
Reinstatements
GIC Re
Non-Proportional Slip
Rate of Adjustment
Minimum & Deposit Premium
General Conditions
Exclusions
GNPI
Brokerage
Other Information
GIC Re
GIC Re
GIC Re
MDP working
GNPI is 1 crore; MDP 85%
Layer
Ded
Rate Premium
3 crore
2 crore
5 crore
5 crore
5%
GIC Re
5,00,000
MDP
4,25,000
Reinstatement
Pro-rata as to amount reinstated
Pro-rata as to time
The number of reinstatements and the amount
at which it is to be reinstated is also
mentioned in the slips
GIC Re