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Old 10-22-2002, 08:07 AM
leeprechaun leeprechaun is offline
 
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Default What is reinsurance?

That's my question. Can you tell me about what companies do this, what kind of insurance, etc.
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Old 10-22-2002, 08:51 AM
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Simplest case: a small company issues a policy with a $3 million death benefit. Even if the premium is appropriate, if the insured were to die its financial condition would be significantly impaired. So it finds another company or other companies who are willing to take perhaps $2.5 million of the risk in exchange for some of the premium (which may not be 5/6 of the premium, depending on plan of insurance, expense issues, etc).

Even the largest companies use some reinsurance, on policies with face amounts much greater than $3 million.
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Old 10-22-2002, 09:03 AM
jerrytuttle jerrytuttle is offline
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Default Joke answer

The joke answer to "What is reinsurance?" is: after hearing a proper answer, "Oh, I get it. Boring, squared."

Attributed to Al Beer, FCAS.
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Old 10-22-2002, 09:13 AM
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Reinsurance is on virtually every type of insurance risk. Most compamies reinsure at least some piece to minimize risk.
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Old 10-22-2002, 09:59 AM
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FYI, Gandalf is talking about life insurance. Reinsurance also applies to P/C Insurance, where as opposed to a face amount on life policies, you never know what the value of the loss will be. Most primary policies have limits, but some (such as Workers Compensation) do not. Reinsurance can, among other things, stabilize losses - for a price.
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Old 10-22-2002, 10:27 AM
Alya Alya is offline
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Default Re: What is reinsurance?

From C5 material
(use reinsurance to TRANSFER the risk)

Tax benefits - [...]

Reduce claims - [...]

Assets transfer - can transfer undesirable assets to reinsurer without really selling them

New business financing - may not have enough assets for reserves to start a new product line, so use reinsurer's money

Surplass relief - [...]

Fronting - used if reinsurer is a regular insurance comp that does not have a license in policyholdr's jurisdiction

Expertise of reinsurer - if starting a new product and don't really know how to underwrite it, may want to use reinsurer for undewrinting

Risk transfer - limit and smooth risks (the main reason)

Used in Life, P&C, at least some group insurance. The only type of ins where i don't think it is used is medical/dental, but even that might not be true.

Companies that do it: many insurance companies will be reinsurers for others. Also anybody with big assets and some idea of how to calculate risks (or check calculations made by others) -- that would include some big investment companies.
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Old 10-22-2002, 10:45 AM
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We used reinsurance for medical at my former employer. Covered excess costs for catastrophic high dollar claims like heart transplants. Also had stop loss reinsurance, but it was expensive and hard to come by.

But we never reinsured dental.

Basically, it's insurance for insurance companies. Either insurance against really high dollar individual claims or groups of claims from one disaster, or insurance against your total losses in a year exceeding some high threshold.

There are variants that don't quite meet this definition, like fronting reinsurance which lets you offer someone else's product on your paper, or portfolio reinsurance that lets you get out of a line of business without formally withdrawing from a market, but those are side issues.
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Old 10-23-2002, 06:07 PM
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Out of curiosity, is what you are calling "portfolio insurance" synonymous with assumption reinsurance?
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Old 10-24-2002, 09:00 AM
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Quote:
Originally Posted by Battery Park City
Out of curiosity, is what you are calling "portfolio insurance" synonymous with assumption reinsurance?
Yup, where you reinsure the whole portfolio of policies in a given line of buisness off to someone else 100% for the value of the reserves plus, and it becomes their headache.

Or from the other perspective, you assume the whole block from someone else for reserves plus and now it's your headache!
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