03/08/2022
REINSURANCE
is also known as insurance for insurers or stop-loss insurance. Reinsurance is the practice whereby insurers transfer portions of their portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim.
In effect, it is an arrangement by which an company transfers all or a portion of its risk under an insurance contract to another insurance company. It does this in order to protect itself against all or part of the losses that those insured would report. For example, Prudential Beneficial Insurance Cameroun insures a property valued at XAF500M against fire and may reinsure the property with CICA-RE (Compagnie Commune de Réassurance des Etats membres de la CIMA) requiring the latter to pay half of all the losses under the policy. In the event of a XAF100M loss suffered by the property, Prudential Beneficial Insurance Cameroun will pay the insured XAF100M and then collect XAF50M from CICA-RE.
In this process, the company transferring the risk is called the ceding insurer, and the company assuming the risk is called the reinsurer. When there is a claim on a policy, the reinsurer is liable to the ceding insurance company, not the insured. The insured has a contract with the insurer, not the reinsurer, and usually, he/she is not informed that reinsurance exists.
Some companies specialize in reinsurance, but insurance companies that sell both insurance and reinsurance do the bulk of the reinsurance business. Thus, a company may act as both an insurer and reinsurer, ceding part of its risks to another reinsurer and accepting a portion of other insurers’ risks. A reinsurer also may share part of its reinsured business with still another insurer or reinsurer, in which case it practices retrocession.
Reinsurance is significant to the buyer of insurance for several reasons :
· Reinsurance increases the financial stability of insurers by spreading risks.
· Reinsurance facilities place enormous risks with one company, thus eliminating the need for many policies to cover one colossal risk.
· Reinsurance helps small insurance companies stay in business than they would otherwise if large claims were made.
Some Reinsurance companies in Cameroon are; CICA-RE, Ghana-RE, Continental Reinsurance Corporation, Zenithe Insurance, and many others………….
