Reinsurance, Principles of Insurance Video Lecture | Principles of Insurance - B Com

Ans. Reinsurance is a process where an insurance company transfers a portion of its risk to another insurance company. It helps the insurer to mitigate the financial impact of large losses by sharing the risk with one or more reinsurers.

Ans. The principles of insurance are as follows: 1. Principle of utmost good faith: Both the insured and the insurer must disclose all relevant information honestly and accurately. 2. Principle of insurable interest: The insured must have a financial interest in the subject matter of the insurance policy. 3. Principle of indemnity: The insurer agrees to compensate the insured for the actual loss suffered, not exceeding the insured value. 4. Principle of subrogation: The insurer has the right to take legal action against a third party responsible for the loss after compensating the insured. 5. Principle of contribution: If the insured has multiple insurance policies covering the same risk, each insurer will share the loss proportionately.

Ans. Reinsurance provides several benefits to insurance companies, including: 1. Risk mitigation: Reinsurance allows insurance companies to transfer a portion of their risk to reinsurers, reducing their exposure to large losses. 2. Enhanced capacity: By using reinsurance, insurers can underwrite more policies and offer higher policy limits than they could on their own. 3. Financial stability: Reinsurance helps insurers maintain financial stability by sharing the financial burden of claims and preventing insolvency. 4. Expertise and knowledge: Reinsurers often have extensive experience and knowledge in specific areas, which can be valuable for insurers in managing risks effectively.

Ans. There are several types of reinsurance, including: 1. Facultative reinsurance: This type of reinsurance is done on a case-by-case basis, where the insurer decides whether to transfer the risk for each policy. It is typically used for high-value or unique risks. 2. Treaty reinsurance: In treaty reinsurance, the insurer transfers a certain portion of all policies falling within specific criteria to the reinsurer. It is a long-term arrangement. 3. Proportional reinsurance: In proportional reinsurance, both the insurer and reinsurer share the premiums and losses in a predetermined proportion. It can be further classified into quota share and surplus reinsurance. 4. Non-proportional reinsurance: Non-proportional reinsurance provides coverage for losses that exceed a certain threshold. It includes excess of loss and stop-loss reinsurance.

Ans. Reinsurers make money through the following ways: 1. Premiums: Reinsurers collect premiums from insurance companies in exchange for assuming a portion of their risk. These premiums are based on the reinsurer's assessment of the risk and the likelihood of claims. 2. Investment income: Reinsurers invest the premiums they receive in various financial instruments, such as stocks and bonds. They earn income from these investments, which contributes to their profitability. 3. Underwriting profit: Reinsurers aim to underwrite policies effectively, ensuring that the premiums collected are sufficient to cover potential losses and expenses. If they can achieve underwriting profitability, it adds to their overall profitability.