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The concept of reinsurance It is used in the industry insurance . Insurance is a service provided by a specialized company (the insurer ): through a contract, you agree to indemnify certain damages suffered by a person or an organization (the insured ). In exchange for this coverage, the insured pays a cousin to the insurer.

Reinsurance is a new contract through which an insured assumes, either partially or totally, the coverage of a risk that had already been covered by another insurance firm , without modifying the agreement already established between it and its client (the insured).

We can understand the operation of reinsurance by simplifying the operation. A insured X pay a premium to insurer 1 , which covers the risks of a certain nature and must pay compensation in case the risks become damages. Reinsurance arises when another insurer (the insurer 2 ) happens to assume the risks accepted by the first insurer (the insurer 1 ), leaving the terms agreed between the insurer 1 and the insured X . In case the damage now occurs, the compensation must be paid then the insurer 2 , although always through insurer 1 (he insurer 2 and the insured X they have no direct link).

This type of operation is carried out when an insurer wishes to cut the amount of possible compensation that must be covered. For this, it establishes a new contract with another insurer, without modifying the relationship Already established with your own customers.

Through the reinsurance contract, the reinsurer accepts a part of the risks (or their totality) and also receive, as previously agreed by the insurer to assign to it, a proportion of the premiums accrued from the policy, as well as from the payments of the claims that it covers. Broadly speaking, it is possible to distinguish two criteria for sharing premiums and responsibilities assumed in this contract, and they are explained below.

Proportional reinsurance

The amount of responsibility assumed by the reinsurer if the incident referred to in the contract occurs can be calculated by establishing a proportion between the premium that you would receive (the one given by the original insurer, called transferor) and that of the policy in total. In short, it participates in the same proportion of premiums and claims.

Non proportional reinsurance

In this case a new concept comes into play: a variable called XL or priority, which serves to describe a limit that is established to distinguish between the amounts that each party must cover, so that the superiors to it are borne by the reinsurer, while the inferiors are the responsibility of the insurer. In other words, the reinsurer must only respond to claims that are above a value established in the contract.

According to the dictionary of right , this type of reinsurance is defined as insurance of other insurance, in this case, of the contracted person in the first place, so that an insurer assumes, totally or partially, the responsibility of covering the risks that another insurer had insured, receiving in return a part of the premium and without the original contract being submitted to any modification.

It is important to highlight that the private insured is in no case affected by the relationship that his insurer has with others in the matter of reinsurance; As mentioned above, this contract is signed by the insurance company to share with another the responsibility that he assumed with his client, and for that he yields part of his earnings, but it is something that happens in the behind the scenes from the point of view of the general public.

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