From the perspective of the insurer, it can be viewed as a payment paid by the policyholders to the insurer in the form of a fee that can be refunded in the case of a default (a conditional setback).

Reinsurance is usually appropriate for minor purchases. Reinsurance, nevertheless, is usually not an inexpensive solution to hard capital or loans for very large transactions. In fact, as transactions are major, transaction costs may be minimized for retail activities because a large portion of their costs are fixed. In that case, stock issuing, debit or securitization is much more effective.

The first reassurance agreement was formed in Genoa in 1370. Sea merchants used to collect their ships to protect their investment: if the ship was to fail, the merchant was not killed, any merchant paying a small portion. But the insurance industry really grew during the Middle Ages, with a boom in trade.

Big four: Western, predominantly European. The big four are coming together: Swiss Re, Munich Re, Hannover Re, and Berkshire Hathaway. Syndicates: first of all, Lloyd’s of London, which is not a corporation, is actually a syndicate. Bermuda: mainly small specialized reinsurers based in Bermuda, for tax incentives. Gathers: Swiss Re, Munich Re, Hannover Re, and Berkshire Hathaway.

European reinsurers have a mixed life and non-life balance Reassurance activity. RoE was within 10% on average. Lloyd’s is significantly smaller than Bermuda and European reinsurers, as determined by its capacity (GBP 23 bn relative to $90 bn and $60 bn of funding for European and Bermuda reinsurers, respectively). However, it is an important market, particularly for  Reinsurance of specialization

The Guideline aims to enforce prudential regulations in line with the laws applicable to insurers and to properly consider the fund of reinsurers as qualifying reserves. (This is a big change in France where the insurance law did not consider the reinsurance as a qualifying asset because it was not a collateralized asset).

Special Purpose Reinsurer (SPR) are re-insurers for a particular intent, as it is said, typically for securitization and technically without risk support.

The ambiguity of the reinsurer ‘s premium requires the reinsurer to measure and evaluate the risk concisely: the underwriting of insurance against specific risks is analogous to the assessment of underwriting risks, but also of the efficiency of the teams that underwrite and handle claims. Often the reinsurer knows the risk better than the insurer, particularly for very specific risks. To such a degree, the reinsurer is regraded as an insider.

The reinsurer not only knows the business, but also takes an attempt on insurance risks and their analysis to assess the risk portfolio and is an expert. The insurer is liable to the insured.

Reinsurance is insurance that is bought by insurers by reinsurers to mitigate the actual liability that the owner may have suffered in the case of a catastrophic incident, e.g. a natural catastrophe, resulting in a large number of covered assets becoming affected. Reinsurance enables insurance providers to pass the liability: part or more of the liability to the insured is borne by other firms in exchange for reimbursement of the premium.

Reinsurance could certainly make the outcomes of an insurance policy more stable by covering higher risks (either in terms of risk effect or frequency) and the the amount of money required to offer coverage.

The agreement under which the insurer, called the transferor, transfers part of the liability to the reinsurer is called the reassurance convey. The assignment can be a whole or a section of a single risk, a specified strategy, or a given division of operation, as stated in the reinsurance contract.

A deal in which the reinsurer decides to pay half of the liability already insured, underwritten or approved, is considered recognition. Under this situation, the reinsurer passes all or half of the liabilities to another reinsurer, reassurance is termed retrocession.

Proportional reinsurance (benefit transfer): with a particular risk, the liability is divided between the insured and the reinsurer in proportion to the premium difference between the insurers. In the regulator’s point of view, both flexibility and objectivity have made proportional reinsurance more attractive on a liquidity basis than non-proportional underwriting.

Non-proportional reinsurance (loss transfer): the reinsurer and the insurer determine how the insurer should act in the case of a loss and determine the resulting premium. Non-Proportional reinsurance is commonly used to minimize vulnerability to hazards and disasters.

Reinsurance Capacity: Reinsurance volume when an insured covers equivalent to the estimated loss on a single risk/event. The following formula is used for different risks:
Reinsurance Capacity = Capacity underwriting − Retention

When many reinsurers (or insurers) share the risks of a reinsurance deal, they are called co-(Re)insurance. The deal owner, usually the central insurer with the largest stake, has a special role to play in agreeing terms and conditions with the transferee.

A 70 percent pool allocation will entail a 70 percent allocation allocated to the reinsurer, with the remaining 30 percent held by the insurer. The priorities and goals of the insurer, as well as the amount of proportionate resources available on the reinsurance market at the time of placement, will decide the percentage that the insurer will hold on its own account.

Different coverage or types of company can be exempt under the terms of the contract. It can not be passed to the re-insurer without proper examination and consent (usually referred to as specific acceptance) by the re-insurer. For example, tunnels and large bridges are exempt from the QuotaShare Classical Property or from the possibility of pharmaceutical and oil production from the Quota-share liability.

The reinsurer requires the client to award or control commission compensation on any gross premium earned, which is big enough to compensate the client for the fee paid to its employees, plus taxes and overheads. The size of the fee also dictates the income or loss of the reinsurer. From an accounting perspective, the commission is known to be a form of expense.

Surplus Treaty: a re-insurance that allows the insurer to move and the re-insurer to take part of the liability that meets the initial protection cap of the insurer. The reinsurer invests in premiums and losses in the same amount as it invests in the overall insurance risk limits.

The ‘two-line’ excess sharing policy calls for the reassurance of double the reinsured’s remaining exposure, enabling the re-insured to pay three times as much insurance as was feasible before the reassurance.

Typically, there is an average of 3 surpluses in the reinsurance system, the potential of which is growing. The explanation for such a cap is to reduce operating costs of handling further surpluses for small interest (analog is a polygonal representation of three points of a scale, here a distribution percentage for a particular reinsurance).

The reinsurer accepts responsibility only for damages which exceed the term of the contract, in exchange for reimbursement of the premium agreed by the insurer and the reinsurer, without any clear relation to the premium paid by the insurer. Practically, we should treat non-proportional reinsurance as protection for the insurer.

Quota-share method of reassurance was the first form of proportional reassurance and is still commonly used. The Surplus Agreement is a Reinsurance which allows the insurer to move and the reinsurer to assume a portion of any liability that reaches the default retention cap of the insurer.

Reinsurance Capacity: Reinsurance volume when an insurer pays equivalent to the overall loss on a single risk/event. For different risks:
Reinsurance Capacity = Capacity underwriting − Retention

In this situation, the reinsurer must pay a percentage of the damages in excess of the limit, often referred to as the holding. In addition, we distinguish non-proportional reinsurance on the grounds of the estimation of the risks to be added to the reinsurance treaty.

For Event / Cat Risk Excess: the loss refers to the damage suffered by the insured in a different account even in the same catastrophe event. This vulnerability is related to the existence of an incident (natural or non-natural) involving a variety of threats considered to be non-independent. Under any case, the reinsurer is exposed to an expected escalation of lawsuits.

Stop Loss: the loss refers to the loss suffered by the insured on a similar account over a span of time (usually one year). The reinsurer must pay a portion of the damages in excess of the limit, often referred to as maintenance.

We note an Excess of Loss, b X a with: a = XL attachment point or retention, b = XL limit and a + b = limit or capacity
XL attachement point : 3 M, XL limit : 5 M and XL capacity: 3 + 5 = 8 M