|3||Berkshire Hathaway Re||11,577|
|5||Lloyd's of London||7,950|
|7||Everest Re Group||3,875|
|10||ACE Tempest Reinsurance||3,405|
Source: Forbes 2000.
The goal of the reinsurance policy is to transfer the risk of the insurer to the reinsurer. Reinsurance companies basically insure consumer insurance companies who supply coverage for various types of contracts. Most insurance companies have a reinsurance program in place in order to make them more financially secure. Under a reinsurance contract, the reinsurer agrees to pay a portion of the insurer’s losses in return for the premium paid to them by the insurer. Insurers with a reinsurance program in effect are capable of issuing policies with higher limits meaning they can shoulder more risk since a portion of that risk is shifted to the reinsurer.
Due to record losses suffered during recent financial crisis, the top reinsurers fluctuate in their ranks, among them are Swiss Re, Munich Re, and Hannover Re.
While reinsurance aids in making an insurance company’s bottom line more foreseeable by lowering the amount of capital required to supply compensation to policyholders, natural catastrophes are unpredictable and are something that reinsurer’s have to be prepared for, particularly events like earthquakes that can occur any time of the year.
Reinsurance policies fall under the proportional and the non-proportional type. Further proportional reinsurance can be divided in to quota share and surplus reinsurance. Under proportional reinsurance, one or more reinsurers take a percentage share of every policy written by an insurer. What it means is that the reinsurer will receive a percentage on the dollar for premiums paid to the insurer, however they are required to pay that same percentage to compensate losses. Premiums and losses are shared on a pro rata basis under a quota share treaty.
A surplus share treaty is also seen as a variable quota share contract, in this type of policy a retention limit is set for each policy as a specific dollar amount, the reinsurer pays anything above that amount up to a maximum limit. In the event of a loss, the insurer and the reinsurer would compensate based on the same proportion as that policy’s provided coverage.
Only if the losses suffered by an insurer exceed a particular amount, then will the non-proportional reinsurance respond. Among the types of non-proportional insurance coverage are excess of loss and stop loss. Excess of loss reinsurance covers the insurer against all or a part of the loss that exceeds the specified loss retention. Stop loss covers the insurer for the amount the losses they sustain surpass an agreed amount.