CHAPTER 1: NATURE AND PURPOSE OF REINSURANCE

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CHAPTER 1: NATURE AND PURPOSE OF REINSURANCE

Comparison between reinsurance and Co-insurance

Co-insurance

Reinsurance

The functions or advantages of reinsurance

Ease of entry or exit from a territory or a class of business

Underwriting assistance

Catastrophe protection

Stabilization of loss experience

Financing

Capacity

Principles of reinsurance

Privity of contract

Duty of disclosure

Why need reinsurance?

Provide expertise to cedents

Income smoothing

Substitute for risk capital

Risk transfer

Definition of reinsurance

Parties involved in reinsurance:

Reinsurance broker

Retrocessionaires

Administration

Lloyd's

Direct insurers

“Reinsurance is the insurance of the risk borne by the insurer"

History of reinsurance

Fire class of business

-Rapid development of reinsurance was also due to major fires in New York (1835), Germany (Memel,1854), Switzerland (Glarus,1862) and England (Tooley Sreete Fire, 1861).

-The development of the fire reinsurance in the 2nd of the 19th century.

Marine transport.

-It is shows a true reinsurance practise between the insurer and reinsurer, without the owner of the cargo having any contractual relationship with the reinsurer.

-Because of the dangerous nature of voyage, the insurer transferred most of the risk to a second insurer, who accepted it.

-The first known reinsurance contract, written in Latin, was effected in Genoa in July 1370. It concerned a cargo that was to be carried by sea from Cadiz (in Spain) to Sluis (in Flanders) and was insured.

The reinsurance institution grew up mainly in marine transport. However,it is in the fire class of business where it has developed most.