The return of life insurance is a method whereby the life insurance company, which insures the life of the insured, transfers part of the risk to another company called reinsurer and life insurance company called the assigned company or the original company. The main purpose of reinsurance is to reduce the risk of insurance The insurance company faces the risk of insurance facing the life insurance company is premature death.
Life insurance companies accept reinsurance business from one another. However, there are specialized reinsurance companies that do not accept direct insurance in the sense that they do not deal directly with the insured.
Persons participating in the reinsurance market
The reinsurance market consists of reinsurance buyers, intermediaries and sellers of reinsurance buyers such as direct insurers who deal with the insured and buy reinsurance brokers such as insurance brokers sellers such as reinsurers and direct insurers as sellers also accept reinsurance operations from each other.
The Insured is not a contracting party to the reinsurance contract because the reinsurance contract is a contract between the direct insurer and the reinsurer and the insurer has no role or position in this contract and it follows that even if the refuser refrains from fulfilling its obligations towards the direct insurer for any reason The insured is still liable to the insured because the reinsurance contract is independent and separate from the insurance contract and in fact most of the insured do not know about the existence of the reinsurance contract.
The need for reinsurance
The basic principle in all types of insurance is the spread and distribution of the risk. Spreading the risk If the insurance amount of the document is one million pounds and the insured dies, the insurance company will bear a loss of one million pounds, but can reduce this loss if from the beginning, divide the amount of one million pounds, This part is called retention and the remaining part is distributed to insurance companies or reinsurers in the sense that it restores the excess and each company determines the retention limit and the retention unit and the liability of the reinsurer are specified in the reinsurance contract.
Death stress is the total amount of death claims paid minus the total reserve on the documents for these claims. For example, if the death benefit paid on a document is 1,000 pounds and the actuarial reserve on the document that the insurance company made is 80 pounds, the death stress (the risk amount) is 920 LE.
Mortality is the result of unexpected early claims before life insurance premiums take up the opportunity to build huge reserves such as those owned by established insurance companies. So the new insurance company enters into reinsurance agreements to restore a large proportion of the stress of death and may return all Stress and mortality in the early years and as these new companies become more stable and firm, the need for reinsurance decreases and increase the retention rate.
New Business Stress
The new business stress is a stress on the life insurance company when you sign up for new insurance business when you issue documents and initial premiums are not enough to cover initial expenses that are high in the early years of issuing documents such as the initial commission of the insurance broker, administrative expenses, These fees may increase the higher premiums on the first premiums obtained by the insurance company, but the continuous collection of installments over time, the stress decreases and then the return (profit) to appear and when we say that this person strained himself, The intolerable or carry it over capacity.
Reinsurance is necessary for the new insurance company that has started issuing life documents and the new insurance company wishes to make the new insurance business stress within its capacity or through its reinsurance. The reinsurer pays a commission to the assigned company and bears the stress of death.