ReInsurance

You came across this phrase ReInsurance but don't know what it is?Let us have a close look what is ReInsurance?

Insurance companies are taking risks.They have to pay claims as and when they occur.They cannot be sure when the claim will occur and how big the claim may be. This is so because of the very nature of perils.Insurers normally are financially sound enough to be able to pay claims.But there are limits.An event like the tsunami or a hurricane may generate claims amounting the crores of rupees,which may put a very heavy strain on the reserves of the insurer.Insurers protect themselves from such situations,which may be beyond their capacity,by reinsuring the risk with other insurers.If there is a claim,the burden is shared by the primary insurer and the reinsurers.

There are some companies which are exclusively in the business of reinsurance.In India the General Insurance Corporation of India is the national insurer.Reinsurance business is placed globally.When there is a major calamity,the claims affect several insurers all over the world,through the system of reinsurance.

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