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The World Bank primer on reinsurance

Author

Listed:
  • McIsaac, Donald A.
  • Babbel, David F.

Abstract

Reinsurance is a mechanism the insurance industry uses to spread the risk it assumes from policyholders. Through reinsurance, the industry's losses are absorbed and distributed among a group of companies so that no single company is overburdened with the financial responsibility of offering coverage to its policyholders. Catastrophes, unexpected liabilities, and a series of large losses that might be too great for an individual insurer to absorb can be handled through reinsurance. Without it, most insurers would be able to cover only the safest of ventures, leaving many risky but worthwhile ventures without coverage. The authors present a primer of reinsurance concepts, explaining such terms as ceding company, primary carrier, direct underwriter, cession, retrocessions, ceding commission, and surplus relief reinsurance. There are separate sections on: 1) The purposes of reinsurance (for example, underwriting capacity, earnings stability, reserve requirement reduction, and mechanism for existing business), 2) Methods of cession for reinsurance contracts (treaty, facultative, and automatic facultative), 3) Types of reinsurance contracts (proportional, nonproportional, hybrid, and retrocessions), 4) Prices and usage of reinsurance contracts, 5) The economics of risk transfer, 6) The characteristics of reinsurance risk, 7) The reinsurance market and 8) Reinsurance regulation.

Suggested Citation

  • McIsaac, Donald A. & Babbel, David F., 1995. "The World Bank primer on reinsurance," Policy Research Working Paper Series 1512, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1512
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    References listed on IDEAS

    as
    1. Kahn, Paul Markham, 1961. "Some Remarks on a Recent Paper by Borch*)," ASTIN Bulletin, Cambridge University Press, vol. 1(5), pages 265-272, July.
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    Cited by:

    1. P. Nowak, 1999. "Analysis of Applications of Some Ex-Ante Instruments for the Transfer of Catastrophic Risks," Working Papers ir99075, International Institute for Applied Systems Analysis.
    2. Vittas, Dimitri, 1995. "Tunisia's insurance sector," Policy Research Working Paper Series 1451, The World Bank.
    3. Howard Kunreuther, 1997. "Managing Catastrophic Risks Through Insurance and Mitigation," Center for Financial Institutions Working Papers 98-13, Wharton School Center for Financial Institutions, University of Pennsylvania.

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