Reinsurance

Reinsurance is a category or area of insurance activity that arose immediately after direct insurance. What is the difference between insurance and reinsurance? In fact the differences are small; one of the main ones is that a reinsurance company does not conclude a contract with the client and has no obligations to the client: the contract is concluded with the insurance company, and on terms that may differ significantly or in many respects from the original insurance contract. The risks mainly transferred to reinsurance are property risks, oil risks, aviation risks, energy risks, and less often motor insurance and construction and erection risks insurance.

Why reinsurance is necessary

Where there is a large risk, an insurance company is not always able to meet its obligations effectively. To reduce its own burden in respect of a single risk or a set of risks, the insurance company needs to distribute it among participants of the insurance market, often the global market, which ensures the financial stability of the insurance company if an insured event occurs.

Terms of reinsurance

Sometimes the terms of reinsurance for an insurance company are much better than those it gave the client, but only because the insurance company transfers more risks and pays more premiums.

A reinsurance contract may also be worse for the insurer: for example, the insurer may keep the greater part of the risk and additional conditions for a smaller part of the insurance premium.

Reinsurance companies

Any company holding a licence for reinsurance activity may reinsure a risk, and it can take the risk from any point in the world. Reinsurance and rates are often determined on the basis of an international rating (International rating of insurance companies of Kazakhstan); below are some reinsurance companies:

  • Munich Re
  • Hannover Re
  • Partner Re
  • R+V
  • Odyssey America Re
  • Korean Re
  • Liberty Syndicate
  • Sava Re
  • Lansforsakringar Sak Forsakrings AB
  • OSAO “Rossiya”
  • OJSC “Russian Reinsurance Society”
  • CJSC “AVICOS”
  • OJSC “ROSNO”
  • OSAO “Ingosstrakh”
  • CJSC “Capital Reinsurance”, etc.

The list of insurance and reinsurance companies is not exclusive, for the following reasons:

  1. work is regularly carried out to expand the partner network;
  2. our main partners, i.e. the insurance companies of Kazakhstan (the ones we represent), can arrange reinsurance with practically any reinsurance company that meets the requirements of the legislation.

The list is given in its historical version: the composition and status of the companies listed may have changed since then, so when choosing a reinsurer its current standing and rating are always checked.

Basic concepts

  • Cedent (reinsured) – the insurance company that transfers part of the risk.
  • Reinsurer – the company that accepts the risk into reinsurance.
  • Retention – the part of the risk that the insurer keeps for its own account.
  • Retrocession – the further transfer by a reinsurer of part of the accepted risk to other reinsurers.
  • Reinsurance commission – the remuneration paid by the reinsurer to the cedent for bringing in business and for the costs of administration.

The terms are covered in more detail in the glossary.

Forms of reinsurance

Facultative

Each risk is offered to the reinsurer separately, and the reinsurer is entitled to accept or decline it. This form is used for large and non-standard objects: industrial enterprises, energy, major construction.

Obligatory (treaty)

The insurer and the reinsurer conclude a contract in advance under which all risks of a certain type within the established limits are automatically ceded to reinsurance. This is convenient for mass lines and speeds up work with clients.

Facultative-obligatory

A mixed form: the cedent itself decides whether to cede the risk, and the reinsurer is obliged to accept what is ceded within the agreed terms.

Methods of reinsurance

  • Proportional – the reinsurer receives a share of the premium and bears the same share of each loss. This includes the quota share treaty (a fixed share of all risks in the portfolio) and the surplus treaty (the part of the sum insured above the retention is ceded).
  • Non-proportional – the reinsurer participates only in losses above an agreed level. The main types are excess of loss (per risk or per event) and stop loss (protection against the overall loss ratio of the portfolio being exceeded).

What the policyholder should know

Reinsurance does not change the insurance company’s obligations to the client: the policyholder receives payment from its own insurer even if a significant part of the risk has been ceded abroad. For the client, reinsurance is an indicator that the insurer is able to pay a large loss. For large contracts, including in tenders, the customer is entitled to request confirmation of reinsurance protection and information on the reliability of the reinsurers. The requirements for non-resident reinsurers, including requirements for their rating, are set by the regulator – ARDFM.

Reinsurance is especially relevant for business property insurance and for energy, construction and transport risks. For more on our capabilities, see the reinsurance section.

If necessary, contact Polis Re for fuller advice or get a consultation on your risk straight away.