REINSURANCE

Reinsurance is the transfer or assignment of risk from the insurer to one or more reinsurers for the purpose of quality and sustainable risk management, for which the insurer pays a premium to the Reinsurer. The Insurer can transfer part of the risk or the whole risk to one or more Reinsurers for which it pays an insurance premium. The contract between the Insurer and the Reinsurer determines which part of the risk will be transferred to reinsurance, for which the Reinsurer will pay compensation to the insurer in the event of damage, and under what conditions. The two basic methods of reinsurance are optional or individual reinsurance and mandatory treaties. Optional reinsurance is contracted separately for each risk, and is usually contracted by the Insurer for individual risks that are not covered or insufficiently covered by mandatory (treaty) contracts, for insurance sums that exceed the financial limits of mandatory (treaty) contracts, and for specific risks. As a rule, the costs of optional reinsurance are higher due to the individual assessment and assumption of each risk, although precisely because of the individual and thus better assessment of each risk, the Reinsurer can, as a rule, determine the premium more precisely depending on the exposure and type of risk. Treaty or mandatory contract implies an agreement between the Insurer and the Reinsurer on the transfer of part of the risk of all contracted and issued insurance policies for one year, which are covered by such a contract, from the Insurer to the Reinsurer. A treaty contract can be binding for the Reinsurer, who must then accept the agreed types and amount of risk in the reinsurance, which is why such contracts are called "obligatory". In addition to the above, there is also a combination of an optional-mandatory reinsurance contract in which the Reinsurer has the option to accept or not accept a certain insurance contract for reinsurance. Also, treaty contracts are divided into two types, proportional and non-proportional. In the case of proportional treaty contracts, the part of the risk assumed in reinsurance is defined separately for each insurance contract, while in the case of non-proportional treaty contracts, the Reinsurer's obligation is defined by the amount of total claims for all insurance contracts in the year.