Being completely new to the concept of reinsurance, I only knew that reinsurance is insurance for insurance companies, but it was after joining LOGiQ3 was I able to understand the concept of one insurer ceding part or all of its own risk on a policy or group of policies to one or more reinsurers in a little more detail.
However, reinsurance is a vast concept and can be overwhelming when exposed to all at once. As a reinsurance analyst, I very quickly learnt, that to fully understand and grasp the bigger picture, I had to understand the very basics of reinsurance first. So what is this basic information that I recommend you know if you’re new to reinsurance and reinsurance administration? Here it is:
In my opinion, the most important reinsurance relationship to understand is the one between a direct writer which is also known as a ceding company and a reinsurance company, also known as an assuming company. The direct writer is the one that shares its risk with the reinsurers, they form an agreement which is also known as a treaty (for a detailed review of what a treaty is, see “7 Essential Components to a Reinsurance Treaty”). In order for the reinsurer to provide this kind of service, the direct writer pays premiums, which is a specified amount to the reinsurer in exchange for the reinsurance coverage.
Next is the concept of claims. Claims are paid out to the beneficiaries when an insured dies. The direct writer would pay out the death benefit to the beneficiary and as per life insurance policy, the reinsurer would reimburse the direct writer for the reinsured portion of the benefits as outlined in the terms of the treaty. In addition, when looking at policies that are reinsured, the face value of the life insurance policy equals the retention amount plus the ceded amount.
This information forms the very root of the work I do as a reinsurance analyst on a daily basis. Since I am still discovering the different facets of reinsurance, I am sure that I will come across more concepts, which I will continue to add to this essentials list. But thus far, these have recurred on a day-to-day basis and being able to understand these concepts has tremendously helped my work. What are some of the terms and concepts YOU would put on YOUR essentials list? Feel free to add them in the comments section below!