Hello and welcome to my blog today.
Insurance is any means that provides financial support for risk/loss. It is a mechanism where we can transfer risk from person to another for the exchange of a consideration. The reason why insurance companies partake in reinsurance contract is to cover total risk. Total risk consist of the following below;
1. Systematic risk.
This is a very common risk that is everywhere.
2. Unsystematic risk.
This kind of risk is not everywhere and it depends on your port folio.
Reinsurance us an arrangement where a party called reinsurer undertakes to insure another party called the ceding party or the reinsured against a while or partial liabilities undertaken by the primary policyholder.
Reinsurance involves two agents and they are;
1. The Reinsurer and,
2. The Reinsured/ceding party.
In reinsurance contract, the reinsured company bears the deductibles. Reinsurance involve deductible or limited sources. The premium you exceed for reinsurance us called reinsurance premium. When losses occurs, the money the reinsurer lays to the reinsured is called the indemnity payment. Other reasons why we have reinsurance contract include risk mitigation and because of the fact that reinsurance at financial leverage.
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