Re-Insurance

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Re-insurance is that insurance which is purchased by an Insurance Company from another insurance company. The company which sells the Insurance is called as the ceding company or the risk transferor company. By buying the re-insurance the company is willing to share the risk of another company who actually received the premium by selling the Insurance policy. This is generally done in the case of the policy holders who have been Insured for a very large amount of money.

The Re-insurance can either be done directly or through a broker. The ceding company and the company willing to share the risk of the policy enter into an agreement. This agreement contains all the details of the reinsurance and this can be referred and Interpreted by the Court of Law in case of disputed between the two companies. This agreement includes the terms of Premium sharing, Risk sharing etc.

The re-insurance company can either be an Insurance company or any other company who undertakes the re-insurance business. An healthy re-insurance market ensures that the Insurance companies can remain solvent and will be able to serve the customers and the society for a longer period of Time. This practice of re-insurance is very effective during the times of huge disasters such as a Major Hurricane like Katrina. There are two basic methods of Re-insurance which are as follows :

1. Facultative Re-insurance 
2. Treaty Reinsurance 

The Facultative re-insurance plan is the one in which each and every Insurance policy will be separately negotiated by the Insurance companies and the other Insurance company may or may not agree to share the risk by taking the Re-insurance. In the case of Treaty Re-insurance both the Insurance companies enter into an agreement as per which the Ceding company need not discuss each and every policy with the Reinsurance company and upto a certain limit the acceptance of the Reinsurance company is assumed and taken for granted.