ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Reinsurance is the practice whereby insurers transfer portions of their risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim. The party that diversifies its insurance portfolio is known as the ceding party.

Detailed explanation-2: -The insurer transfers some or all of an insurance risk to another insurer. The insurer transferring the risk is called the “ceding insurer”. The insurer accepting the risk is called the “assuming insurer” or “reinsurer”.

Detailed explanation-3: -Risk Transfer to Reinsurance Companies That’s where reinsurance comes in. When insurance companies don’t want to assume too much risk, they transfer the excess risk to reinsurance companies. For example, an insurance company may routinely write policies that limit its maximum liability to $10 million.

Detailed explanation-4: -Risk Transfer Definition CRT is a common method of shifting risk from one party to the other. It involves a non-insurance contract or agreement between two parties whereby one agrees to hold another party harmless for specified actions, inactions, injuries or damages and indemnify the owner.

Detailed explanation-5: -There are two basic types of reinsurance arrangements: facultative reinsurance and treaty reinsurance.