Reinsurance, a product line Philip Deramo has extensive experience in
underwriting, happens when multiple insurance companies purchase
insurance policies from other insurers in order to share the risk. An
extension of the concept of insurance, it passes a part of the risk from
the original insurer to others. There are four main reasons why
reinsurance is an important part of the industry.
- Reinsurance works to protect insurers from large claims. In order to spread out the risk of paying out a large claim, insurers take part of the original claim they agreed to insure and reinsure part of it with others. These reduce the risk that any one insurer will incur a substantial loss.
- Peaks and troughs in the insurance industry throw off the balanced set of underwriting results insurers are looking for each year. With reinsurance, there is a cap on the amount of claims an insurer has to pay out during any given year.
- When a country is vulnerable to natural disasters, it is important to spread the risk. Reinsurance may be used to help spread the risk outside the country.
- If an insurer wants to insure a very large risk, but is unable to on its own, reinsurance can allow them to accept the whole risk and then reinsure any part that they cannot keep.
