Kathmandu. Insurance companies resort to reinsurance to reduce the financial risk they carry. Reinsurance companies play an important role in protecting primary insurance companies from potentially large financial losses. Various structures of reinsurance are used for risk management, of which quota shares (ratio allocation) and access of loss (excess damage) are the most prevalent and important. <\/p>\n
Although the main purpose of these two structures is to transfer risk, their working methods are completely different. <\/p>\n
1) Ratio allocation<\/strong><\/span><\/p>\n }<\/p>\n Ratio allocation is a proportional reinsurance structure. In this, insurance premiums and claims are shared between the primary insurance company and the reinsurance company on the basis of a fixed percentage already predetermined. <\/p>\n For example, if an insurance company has signed a 30 percent quota share agreement, the reinsurance company receives 30 percent of the transferred premium and the same reinsurance company bears 30 percent of the future claims. <\/p>\n <\/p>\n 2) More damage<\/span><\/strong><\/p>\n Excess damage is a non-proportional reinsurance structure. In this, the insurance company bears a certain limit of the amount of damages and the reinsurance company pays only the damages above that limit. <\/p>\n Suppose there is a contract of more than Rs. 5 million in a claim of Rs. 10 million, then the primary insurance company will bear the loss up to Rs. 5 million and the reinsurance company will bear the loss above that up to the maximum limit of the agreement. <\/p>\n In the quota allocation, the risk is distributed proportionately on the basis of a certain percentage. Reinsurance is active only if the loss is more than the prescribed limit. Both the insurance premium and the claim are divided in the ratio as per the prior agreement. Only the claim above the limit is borne by the reinsurance. On the other hand, the reinsurance company accepts the liability to incur losses above a certain limit in case of higher losses. This helps to keep the primary insurer free from the possibility of greater financial burden or loss. <\/p>\n Insurance companies use both reinsurance models to analyse their financial capacity, portfolio and risk appetite to ensure the stability of the insurance sector even when there is a major calamity or high claims in the market.<\/p>\n","protected":false},"excerpt":{"rendered":" Kathmandu. Insurance companies resort to reinsurance to reduce the financial risk they carry. Reinsurance companies play an important role in protecting primary insurance companies from potentially large financial losses. Various structures of reinsurance are used for risk management, of which quota shares (ratio allocation) and access of loss (excess damage) are the most prevalent and […]<\/p>\n","protected":false},"author":5,"featured_media":1541,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45031,45159,45102],"tags":[56050,56080,56056,56060],"class_list":["post-320398","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banner-news-en","category-news-en","category-reinsurance-en","tag-bima-en","tag--en","tag-beema-en","tag-insurancenews-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/320398","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/comments?post=320398"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/320398\/revisions"}],"predecessor-version":[{"id":320399,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/320398\/revisions\/320399"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/1541"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=320398"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=320398"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=320398"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}