What is Reinsurance Industry?
A primary insurer purchases reinsurance to limit its exposure, usually to one specific type of risk, thereby diversifying its book of risk. Businesses in this industry focus on assuming all or part of the risk associated with existing insurance policies originally underwritten by direct insurance carriers. In other words, the primary activity of this industry is insuring insurance companies. Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers.
The Global Reinsurance Carriers industry provides support to direct insurance markets all over the world. In essence, reinsurers provide insurance for policies the insurance industries have written, but are subsequently unwilling or unable to accept. A primary insurer purchases reinsurance to limit its exposure, usually to one specific type of risk, thereby diversifying its book of risk. The global reinsurance market then spreads these risks across more companies and countries, thereby maximizing the spread of risk and protection against unforeseen losses. This improves the capital efficiency of the overall insurance market so that less capital is required to back any unit of risk.
Quick Summary:
- The oldest known reinsurance contracts or "treaties" date back to the fourteenth century
- A primary insurer purchases reinsurance to limit its exposure, usually to one specific type of risk
- Reinsurance companies, or reinsurers, are companies that provide insurance to insurance companies
- Reinsurers play a major role for insurance companies as they allow the latter to help transfer risk, reduce capital requirements, and lower claimant payouts
- Reinsurers generate revenue by identifying and accepting policies that they believe are less risky and reinvesting the insurance premiums they receive
- Reinsurance improves the capital efficiency of the overall insurance market so that less capital is required to back any unit of risk
- Insurance companies pay insurance premiums to reinsurers for the transfer of insurance liabilities
- Reinsurance enables insurance companies to underwrite more policies
- Reinsurers have built up a very high level of expertise in risk-appropriate underwriting
Reinsurance Industry - Investment Profile:
The Global Reinsurance industry requires a relatively small pool of very high quality of human resources. This is because the industry bears a higher level of risk than the primary insurance markets, but does not need a large sales and service network. Specialist personnel is needed to quantify and understand risks so premiums are priced correctly and a balanced risk portfolio is achieved. Incorrect pricing and the misuse of retrocession arrangements can limit underwriting gains and magnify underwriting losses, hurting the reinsurer's bottom line.
Personnel is also required to resolve reinsurance claims. This requires claims review and verification, information gathering and claims evaluation, liability calculation, and timely claims payment.
Industry Products:
- Life reinsurance
- Accident, health and medical reinsurance
- Property reinsurance
- Surety and title reinsurance
- Other reinsurance
- Liability reinsurance
Industry Activities:
- Property and casualty reinsurance
- Annuities, life and disability income reinsurance
- Health and medical reinsurance
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