Reinsurance is the contract signed by a reinsurer pursuant to a contract signed by an insurer, assuming part of the risk that it entails. In this way, all that candeteriorate A certain insurance will be distributed between both companies (the insurance company and the reinsurer).
Reinsurance allows offering greater confidence and support to insurance companies, costing much less than the insurer and customer.
Why is it said that everyone wins reinsurance?
As we have indicated, reinsurance helps both the client and the insurer. Reinsurers, on the one hand, may find a niche in the market; on the other hand, insurers will be able to offer more attractive products and with conditions that help sell more. In between, the client or the insured person walks who will have better conditions by not having so much pressure from the insurance company.
The insurance company will be protected by the help offered by the reinsurance company, avoiding that great risks are interposed and that they carry them alone. For this reason, the cost to pay and, therefore, the conditions offered to us will be optimal at the level we are looking for.
These types of companies finance and help insurers to benefit themselves and the two parties they help, equally. Their business models have worked perfectly in countries like Germany or France.
Types of reinsurance
It can be classified according to two factors: the obligation and the risk.
Types of reinsurance according to obligation
- Mandatory: the risks that are assumed are established in a specific contract
- Optional: there is no contract and the risks are indicated individually
- Mandatory-optional mix: the contract can be optional for one party (reinsured) and mandatory for the other (reinsurer)
Types of reinsurance according to risk
- Quota-part: the reinsurer participates according to a fixed percentage in the risks established in the contract
- Of surplus: the percentage of participation varies according to the risk
- Excess loss: the reinsurer participates when claims exceed a pre-established amount