RE-INSURANCE

Re-insurance can be broadly defined as under:-

1. It is an agreement made between two parties called
Ceding Company and Re-insurer whereby the Ceding
Company agrees to cede and the Re-insurer agrees to
accept a certain share of a risk on certain terms &
conditions. Or
2. It is the off-loading of a part of the liability contractually
assumed by an insurer on a risk with another insurer.


OBJECTS Of Re-insurance
1. Insurers are able to limit the liability as per their
capacity.
2. Acceptance of risks can be for larger amount even
beyond their capacity or retention.
3. Stabilization of income and losses.
4. Indemnity of losses is distributed over a wide area
& distribution is effected more economically.
5. Can get cross-section of the National and
International market business.

Features of Re-insurance
o Reinsurance is opted to spread the Loss of the original
insurer (direct insurer) with re-insurer (who grants a
guarantee to the direct insurer).
o It is made on the principles (utmost good faith/insurable
interest/indemnity/proximate cause)which govern the
original insurance.
o The Direct insurer has insurable interest to the extent of risk
undertaken, hence it can reinsure the property with re-
insurer.
o Re-insurance contract can be terminated when the original
insurance lapses for any reason.
o In the event of Loss or claim, the insured has to be paid
first by the direct insurer & thereafter it can recover from
the reinsurer their share of the liability/loss.

Kinds of Re- insurance
There are six kinds of re-insurance under two broad
categories:
i. Proportional reinsurance:
Quota Share Treaties
Surplus Treaties
Market Pool
ii. Non-Proportional:
Excess of Loss Treaty
Catastrophe Covers
Facultative Treaty


Reasons for Banc assurance
i. Increased return on assets. The best way to
increase return on assets is through fee income,
by which operating expenses could be covered
for better profitable operating expenses ratio.
ii. Most large retail banks engender deal of trust in
loans and advances, which they can protect by
selling the personal life insurance policies.
iii. Face to face interaction that is important in
Insurance is possible through large network of
branches.
iv. Lower cost per head sales which is made
possible by banks sizeable and loyal customer
bases.
v. Marketing and processing capabilities are
available extensively in marketing to both
existing clients for retention and cross
selling and non-clients for acquisition and
awareness. Banks also have access to
various communication channels such as
internet, e-mail, ATMs, Phone Banking/
Tele Banking etc. Banks proficiency has
resulted in improvements of customer
services.
Benefits to Insurance Business
Insurance has much to gain from marketing
and selling through banks. Competition has
driven down the margins of insurance
companies and bulk of bank customers, who
are middle income groups, get little
attention from insurance agent. Banks with
over 68,540 branches all over the country,
have an open market with a vast potential
to insurance business expansion.