Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit

the total loss the original insurer would experience in case of disaster. By spreading risk, an individual insurance company can take on clients whose coverage would be too great of a burden for the single insurance company to handle alone. When reinsurance occurs, the premium paid by the insured is typically shared by all of the insurance companies involved.
Reinsurance is insurance that is purchased by an insurance company (insurer also sometimes called a "cedant" or "cedent") from another insurance company (reinsurer) as a means of risk management. The reinsurer and the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues insurance policies to its own policyholders. The main reason for insurers to buy reinsurance is to transfer risk from the insurer to the reinsurer, but reinsurance has various other functions as explained below. the reinsurer assumes the liability ceded on the subject policies. Reinsurance is a form of insurance. A reinsurance contract is The cession, or share of claims to be paid by the reinsurer, may legally an insurance contract. The reinsurer agrees to indemnify the cedant insurer for a specified share of specified types be inof defined on a proportional share basis (a specified percentage of each surance claims paid by the cedant for a single insurance policy claim) or on an excess basis (the part of each claim, or or for a specified set of policies. The terminology used is aggregation of claims, above some specified dollar amount). that

What Does Reinsurance Mean? The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.

Double insurance
Situation in which the same risk is insured by two overlapping but independent insurance policies. It is lawful to obtain double insurance, and the insured can make claim to both insurers in the event of a loss because both are liable under their respective polices. The insured, however, cannot profit (recover more than the loss suffered) from this arrangement because the insurers are law bound only to share the actual loss in the same proportion they share the total premium. Also called dual insurance. Duplicate protection provided when two companies deal with the same individual and undertake to indemnify that person against the same losses.When an individual has double insurance, he or she has coverage by two different insurance companies upon the identical interest in the identical subject matter. Double insurance denotes insurance of same subject matter with two different companies or with the same company under two different policies. Double insurance is possible in case of indemnity contract like fire, marine and property insurance. Double insurance policy is adopted where the financial position of the insurer is doubtful.

The insured cannot recover more than the actual loss. Reinsurance is insurance that is purchased by an insurance company (reinsurer) from another insurance company (insurer) as a means of risk management, to transfer risk from the insurer to the reinsurer. The reinsurer and the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues thousands of policies. For example, assume an insurer sells one thousand policies, each with a $1 million policy limit. Theoretically, the insurer could lose $1 million on each policy totaling up to $1 billion. It may be better to pass some risk to a reinsurance company (reinsurer) as this will minimize the insurers risk. There are two basic methods of reinsurance: 1. Facultative Reinsurance In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk assumed by a particular specified insurance policy. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance normally is purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual risks. Underwriting expenses and, in particular, personnel costs,are higher relative to premiums written on facultative business because each risk is individually underwritten and administered. The ability to separately evaluate each risk reinsured, however, increases the probability that the underwriter can price the contract to more accurately reflect the risks involved.

1. Treaty Reinsurance is a method of reinsurance requiring the insurer and the reinsurer to formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract. There are two basic methods of treaty reinsurance: o Quota Share Treaty Reinsurance, and o Excess of Loss Treaty Reinsurance.

In the past 30 years there has been a major shift from Quota Share to Excess of Loss in the property and casualty fields.

Functions
Almost all insurance companies have a reinsurance program. The ultimate goal of that program is to reduce their exposure to loss by passing the exposure to loss to a reinsurer or a group of reinsurers. Therefore, they are 'transferring some of the risk to the reinsurer or a group of

reinsurers'. In the USA, insurance, which is regulated at the state level, permits an insurer only to issue policies with a maximum limit of 10% of their surplus (net worth), unless those policies are reinsured.

Risk transfer
With reinsurance, the insurer can issue policies with higher limits than it would otherwise be allowed, therefore being permitted to take on more risk because some of that risk is now transferred to the reinsurer. Reinsurance has gone from a relatively unsophisticated business to a highly sophisticated endeavor. The reason for this is the number of reinsurers that have suffered significant losses and become financially impaired. From 2000 onward, reinsurers have become much more reliant on actuarial models and tight review of the companies they are willing to reinsure. They review their financials closely, examine the experience of the proposed business to be reinsured, review the underwriters that will write that business, review their rates, and much more. Almost all reinsurers now visit the insurance company and review underwriting and claim files and more.

Income smoothing
Reinsurance can help to make an insurance companys results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage. The risk factor is diversified with the reinsurer bearing some of the loss incurred.

Surplus relief
An insurance company's writings are limited by its balance sheet (this test is known as the solvency margin). When that limit is reached, an insurer can do one of the following: stop writing new business, increase its capital, or buy "surplus relief"

Arbitrage
The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than they charge the insured for the underlying risk, which can be in the area of risk associated with any form of the asset that is being issued or loaned against. It can be a car, a mortgage, an insurance (personal, fire, business, etc.) and alike. In general, the reinsurer may be able to cover the risk at a lower premium than the insurer because:

The reinsurer may have some intrinsic cost advantage due to economies of scale or some other efficiency Reinsurers may operate under weaker regulation than their clients. This enables them to

use less capital to cover any risk, and to make less prudent assumptions when valuing the risk. Even if the regulatory standards are the same, the reinsurer may be able to hold smaller actuarial reserves than the cedant if it thinks the premiums charged by the cedant are excessively prudent. The reinsurer may have a more diverse portfolio of assets and especially liabilities than the cedant. This may create opportunities for hedging that the cedant could not exploit alone. Depending on the regulations imposed on the reinsurer, this may mean they can hold fewer assets to cover the risk. The reinsurer may have a greater risk appetite than the insurer.

Reinsurer's expertise
The insurance company may want to avail of the expertise of a reinsurer in regard to a specific (specialised) risk or want to avail of their rating ability in odd risks.

Creating a manageable and profitable portfolio of insured risks

By choosing a particular type of reinsurance method, the insurance company may be able to create a more balanced and homogenous portfolio of insured risks. This would lend greater predictability to the portfolio results on net basis (after reinsurance) and would be reflected in income smoothing. While income smoothing is one of the objectives of reinsurance arrangements, the mechanism is by way of balancing the portfolio.

Managing cost of capital for an insurance company

By getting a suitable reinsurance, the insurance company may be able to substitute "capital needed" as per the requirements of the regulator for premium written. It could happen that the writing of insurance business requires x amount of capital with y% of cost of capital and reinsurance cost is less than x*y%. Thus more unpredictable or less frequent the likelihood of an insured loss, more profitable it can be for an insurance company to seek reinsurance.

Proportional
Proportional reinsurance (the types of which are quota share and surplus reinsurance) involves one or more reinsurers taking a stated percent share of each policy that an insurer produces ("writes"). This means that the reinsurer will receive that stated percentage of each dollar of premiums and will pay that percentage of each dollar of losses. In addition, the reinsurer will allow a "ceding commission" to the insurer to cover the initial costs incurred by the insured (marketing, underwriting, claims etc.).

The insurer may seek such coverage for several reasons. First, the insurer may not have sufficient capital to prudently retain all of the exposure that it is capable of producing. For example, it may only be able to offer $1 million in coverage, but by purchasing proportional reinsurance it might double or triple that limit. Premiums and losses are then shared on a pro rata basis. For example, an insurance company might purchase a 50% quota share treaty; in this case they would share half of all premium and losses with the reinsurer. In a 75% quota share, they would share (cede) 3/4 of all premiums and losses. The other form of proportional reinsurance is surplus share or surplus of line treaty. In this case, a retained line is defined as the ceding company's retention - say $100,000. In a 9 line surplus treaty the reinsurer would then accept up to $900,000 (9 lines). So if the insurance company issues a policy for $100,000, they would keep all of the premiums and losses from that policy. If they issue a $200,000 policy, they would give (cede) half of the premiums and losses to the reinsurer (1 line each). The maximum underwriting capacity of the cedant would be $ 1,000,000 in this example. Surplus treaties are also known as variable quota shares.

Non-proportional
Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority." An example of this form of reinsurance is where the insurer is prepared to accept a loss of $1 million for any loss which may occur and they purchase a layer of reinsurance of $4 million in excess of $1 million. If a loss of $3 million occurs, then insurer will retain $1 million and will recover $2 million from its reinsurer(s). In this example, the reinsured will retain any loss exceeding $5 million unless they have purchased a further excess layer (second layer) of say $10 million excess of $5 million. The main forms of non-proportional reinsurance are excess of loss and stop loss. Excess of loss reinsurance can have three forms - "Per Risk XL" (Working XL), "Per Occurrence or Per Event XL" (Catastrophe or Cat XL), and "Aggregate XL". In per risk, the cedants insurance policy limits are greater than the reinsurance retention. For example, an insurance company might insure commercial property risks with policy limits up to $10 million, and then buy per risk reinsurance of $5 million in excess of $5 million. In this case a loss of $6 million on that policy will result in the recovery of $1 million from the reinsurer. In catastrophe excess of loss, the cedants per risk retention is usually less than the cat reinsurance retention (this is not important as these contracts usually contain a 2 risk warranty i.e. they are designed to protect the reinsured against catastrophic events that involve more than 1 policy). For example, an insurance company issues homeowner's policies with limits of up to $500,000 and then buys catastrophe reinsurance of $22,000,000 in excess of $3,000,000. In that case, the insurance company would only recover from reinsurers in the event of multiple policy losses in one event (i.e., hurricane, earthquake, flood, etc.). Aggregate XL affords a frequency protection to the reinsured. For instance if the company

retains $1 million net any one vessel in the cover of $10 million in the aggregate, the excess of $5 million in the aggregate would equate to 5 total losses (or more partial losses). Aggregate covers can also be linked to the cedant's gross premium income during a 12 month period, with limit and deductible expressed as percentages and amounts. Such covers are then known as "Stop Loss" or annual aggregate XL.

Risk-attaching basis
A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage for the whole policy period when written. All claims from cedant underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from cedant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.

Loss-occurring basis
A Reinsurance treaty from under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered. As opposed to claims-made policy. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for most policies.

Claims-made basis
A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred.

Life Insurance
Main article: Life insurance

Life insurance provides a monetary benefit to a descendant's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.

Life insurance is a contract between the policy holder and the insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. In return, the policy holder agrees to pay a stipulated amount (the "premium") at regular intervals or in lump sums.

The purpose of life insurance is to protect anyone in your life who depends on you as a primary source of income. If you have loved ones that rely on you for the majority of their income, a life insurance policy will help ensure they can cover the expenses of daily living in the case of your unexpected death. Life insurance provides funds to the beneficiaries when the person who was the named insured dies. Beneficiaries are the people named to receive the death benefits of the insurance policy. They can be anyone, but married couples often name each other or children as beneficiaries. If the children are minors, parents may name a trustee to handle the money on behalf of children.

The value for the policy owner is the 'peace of mind' in knowing that the death of the insured person will not result in financial hardship. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion.

There are two primary categories of life insurance: term and permanent. However, there are several different types within each category. Listed below are some of the most common types. Consult your life insurance professional for a more detailed description of the various types of life insurance and how they may apply to your specific situation. Term Insurance - Life insurance under which the death benefit is payable only if the insured dies during a specified period. Listed below are various types of term insurance.

Level Term - a fixed amount of coverage with premiums that are fixed over a certain period of time, usually in 10-year increments. Increasing/Decreasing Term - amount of coverage increases or decreases throughout the term, premiums typically remain level. Renewable Term - includes a renewal provision that gives the policyowner the right to renew the insurance coverage at the end of the specified term without submitting evidence of insurability.

Convertible Term - gives the policyholder the right to convert the term policy to a permanent policy. Group Term - insurance purchased typically by an employer or professional association that is intended to cover several people, usually resulting in reduced premiums.

Permanent Insurance - Life insurance that provides coverage throughout the insured's lifetime and may include an element that builds cash value.

Indexed Universal Life - a form of permanent life insurance that combines the premium and death benefit flexibility of universal life insurance under which the cash value's current crediting rate is based in part on the performance of a financial index. Most policies offer guarantees that if the index is negative, the crediting rate will not go below zero. Traditional Whole Life - remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy. Whole life insurance may also include an element for accumulating growth (called "cash value"). Universal life insurance - characterized by its flexible premiums, flexible face amounts, and unbundled pricing factors. Variable life insurance - a form of whole life insurance under which the death benefit and the cash value of the policy fluctuate according to the investment performance of separate account investment options. Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum. Variable universal life insurance - a form of permanent life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance. Also called flexible premium variable life insurance and universal life II. Last survivor universal life insurance (also known as "survivorship" or "second-todie" life insurance) - permanent life insurance that covers two people (e.g., a husband and wife) and provides for payment of the death benefit proceeds only when both insureds have died. It is generally designed to pay estate taxes. Single-premium whole life insurance - whole life insurance purchased with a single, lump-sum premium.

Term life insurance is the original form of life insurance[citation needed] and can be contrasted to permanent life insurance such as whole life, universal life, and variable universal life, which guarantee coverage at fixed premiums for the lifetime of the covered individual[dubious discuss]. Term insurance is not generally used for estate planning needs or charitable giving strategies but for pure income replacement needs for an individual. Many permanent life insurance products also build a predetermined cash value over the life of the contract, available for later withdrawal by the client under specific conditions. However, on most cash value policies like Whole Life insurance, the only way to receive the cash value is to cash out

the policy. The beneficiaries receive the face value of the insurance but NEVER the cash value with Whole Life policies. Financial advisers generally advise buying term life insurance and investing the difference elsewhere to those who still qualify to contribute to other tax-deferred investment growth such as IRA's or 401k's

When youve decided to buy life insurance, you are going to come across several types to buy. While there are quite a few variations on each, the two broad categories are term life and whole life insurance.
Term life insurance

Term is the best insurance option for younger people. Term insurance is pure insurance, meaning it pays if you pass away during its term, but otherwise has no cash value or saving component. Its also one of the cheapest options you can find because the policy doesnt have this cash value. The amount of term insurance to buy depends on all of your sources of income and level of expenses you wish to provide to your beneficiaries after youre gone. As the name implies, term only covers you for a fixed time period, usually 10, 15, 20 or 30 years. During this term, your life insurance premiums are guaranteed not to increase. If you pass away during the term period, your beneficiaries get a cash death benefit. If you live longer than the term period, you have the option to continue your life insurance coverage for an annual, renewable premium, which is generally much higher.
Permanent or whole life insurance

There are a few types of permanent life insurance, which provides coverage for your whole or entire life. You might consider permanent life insurance if you want your loved ones to receive a large payment amount at your death, even if they no longer depend on your income, or if your estate-planning needs require an outside source of cash (such as owning a small business). But, because permanent life insurance is more expensive than term life, we recommend sticking with term life insurance in most cases. There are a few types of permanent life insurance that you may come across:

Traditional whole life With traditional whole life insurance, the premium payments are fixed and paid either over your entire life, or over a set period after which the policy is considered fully paid for. Unlike term, which is pure insurance, whole life policies have a cash value component. Whole life costs quite a bit more than term life because of that cash value component. Universal life insurance Universal life is a type of whole life insurance where the amount of premium you pay is flexible over the life of the contract. After the first year, you are able to decide how much you want to pay. Throughout the life of the policy, youre credited with income on your premiums and the cost of maintaining the policy is taken from your account. If you dont pay enough and the policy isnt credited with enough income, the policy will lapse.

Variable Universal Life Insurance (VUL) VUL is one of the more complicated financial products out here and can have high hidden costs. There also are very limited cases where this type of insurance is a good idea. VUL works a lot like universal life insurance except that you can choose how your premiums are invested. Its similar to a 401(k) where you have a list of investment alternatives.

Types of Term Life Insurance Policies

Term life insurance is the most affordable type of life insurance available. It is designed to meet temporary life insurance needs; providing protection for a specified period of time, the term. For example, a term of 10, 20 or 30 years. This type of life insurance makes sense if you have financial needs that will diminish over time, such as a home mortgage or a child's tuition. Each year, a premium is paid to cover the risk of death during that year. Term life insurance has no cash value. The only way to collect anything is to die before the term life insurance expires. If death occurs, the life insurance beneficiary generally collects the death benefit of the life insurance policy, free of income tax. Learn more about the different types of term life insurance.

Types of Permanent Life Insurance Policies

Permanent life insurance provides lifelong protection. This type of life insurance policy never ends as long as the premiums are paid. In addition, permanent life insurance provides a savings element that accumulates a cash value over a long period of time. Learn more about the different types of permanent life insurance. In addition to traditional term life insurance and permanent life insurance, there are many other types of life insurance available. Click on a type of life insurance below to learn more.

Child Life Insurance Accidental Death Insurance Disability Insurance Final Expense Insurance No Medical Exam Life Insurance Long Term Care Insurance Critical Illness Insurance Life Insurance Riders

No one type of life insurance is better than another because the type of life insurance that suits your situation best depends on your personal and financial circumstances.

Term Insurance Policy

A term insurance policy is a pure risk cover policy that protects the person insured for a specific period of time. In such type of a life insurance policy, a fixed sum of money called the Sum Assured is paid to the beneficiaries (family) if the policyholder expires within the policy term. For instance, if a person buys a Rs 2 lakh policy for 15 years, his family is entitled to the sum of Rs 2 Lakh if he dies within that 15-year period. If the policy holder survives the 15-year period, the premiums paid are not returned back. The advantage, apart from the financial security for an individuals family is that the premiums paid are exempt from tax. These insurance policies are designed to provide 100 per cent risk cover and hence they do not have any additional charges other than the basic ones. This makes premiums paid under such life insurance policies the lowest in the life insurance category.

Whole Life Policy

A whole life policy covers a policyholder against death, throughout his life term. The advantage that an individual gets when he / she opts for a whole life policy is that the validity of this life insurance policy is not defined and hence the individual enjoys the life cover throughout his or her life. Under this life insurance policy, the policyholder pays regular premiums until his death, upon which the corpus is paid to the family. The policy does not expire till the time any unfortunate event occurs with the individual. Increasingly, whole life policies are being combined with other insurance products to address a variety of needs such as retirement planning, etc. Premiums paid under the whole life policies are tax exempt.

Endowment Policy

Combining risk cover with financial savings, endowment policies are among the popular life insurance policies. Policy holders benefit in two ways from a pure endowment insurance policy. In case of death during the tenure, the beneficiary gets the sum assured. If the individual survives the policy tenure, he gets back the premiums paid with other investment returns and benefits like bonuses. In addition to the basic policy, insurers offer various benefits such as double endowment and marriage/ education endowment plans. In recent times, the concept of providing the customers with better returns has been gaining importance. Hence, insurance companies have been coming out with new and better ULIP versions of endowment policies. Under such life insurance policies the customers are also provided with an option of investing their premiums into the markets, depending on their risk appetite, using various fund options provided by the insurer, these life insurance policies help the customer profit from rising markets. The premiums paid and the returns accumulated through pure endowment policies and their

ULIP variants are tax exempt.

Money Back Policy

This life insurance policy is favored by many people because it gives periodic payments during the term of policy. In other words, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured. In case of death during the policy term, the beneficiary gets the full sum assured. New ULIP versions of money back policies are also being offered by various life insurers. The premiums paid and the returns accumulated though a money back policy or its ULIP variants are tax exempt.

ULIPS

ULIPs are market-linked life insurance products that provide a combination of life cover and wealth creation options. A part of the amount that people invest in a ULIP goes toward providing life cover, while the rest is invested in the equity & debt instruments for maximizing returns. They provide the flexibility of choosing from a variety of fund options depending on the customers risk appetite. One can opt from aggressive funds (invested largely in the equity market with the objective of high capital appreciation) to conservative funds (invested in debt markets, cash, bank deposits and other instruments, with the aim of preserving capital while providing steady returns). ULIPs can be usefull for achieving various long term financial goals such as planning for retirement, childs education, marriage etc.

Annuities and Pension

In these types of life insurance policies, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against financial risks as well as provide money in the form of pension at regular intervals.

The roles of insurance in the development

The insurance companies have given Nigerians the faith to invest in business without fear of losing out. Most financial institution may not want to loan to individuals without them endorsing an insurance policy.

Role of Insurance in Economic Development 1. Risk Transfer- Insurance is a risk transfer mechanism whereby the individual or the business enterprise can shift some of the uncertainties of life on the shoulder of the other. 2. Healthy Life- Insurance provides all the people to live a cleaner, healthier, comfortable and easy life. 3. Protection of trade or industry- In peace, the insurance provides protection of trade and industry which ultimately contribution towards human progress. Thus, insurance is the most lending force contribution towards economics, social and technological progress of man. 4. Promote entrepreneurship

5. Mobilization of Savings

6. Insurance companies work by collecting premiums in exchange for making payouts to clients amid catastrophe. Insurers invest premiums into stocks and bonds for income and profits. Paying out claims is considered an expense, a cost of doing business. 7. Insurance enables institutions and private individuals to take calculated risks. Because of insurance, these parties may purchase goods and make investments that build the economy. Without insurance, individuals would be forced to stockpile low-return cash to guard against losses. 8. For economic development, investments are necessary. Investments are made out of savings. A life insurance company is a major instrument for the mobilization of savings of people, particularity from the middle and lower income groups. These savings are channelled into investments for economic growth. The insurance Act has strict provisions to ensure that insurance funds are invested in safe avenues like government bonds, companies with records and so on. 9. All good life insurance companies have huge funds, accumulated through the payments of small amounts of premium of individuals. These funds are invested in ways that contribute substantially for the economic development of the countries in which they do business. But even their investments in the various sectors and contributing directly and indirectly to the countrys economic development would be of similar proportions.