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As consumers, we purchase insurance to provide ourselves with financial security in unforeseen circumstances for matters related to personal health, houses, cars, commercial buildings and more. Have you ever wondered how insurance companies protect themselves from economic and business risks, as your insurance claims depend on their corporate financial performance?
AN INTRODUCTION TO REINSURANCE
Essentially, reinsurance is insurance for insurance companies. It is a risk-mitigating mechanism that insurance companies use to diversify their business risks. Floods, earthquakes, or typhoons are examples of large-scale catastrophic events that result in huge losses of lives, properties, and assets that could lead to many insurance claims. Reinsurance secures insurance companies from financial insolvency, thereby protecting the companies' customers from uncovered losses.
THE PROCESS OF REINSURANCE
Reinsurance is the practice whereby insurers transfer portions of their risk portfolios as stated in an agreement to other parties in the secondary insurance market. It is done through a legal contract to reduce insurers' risk of paying large obligations that arise from insurance claims. This process is presented as a legal transaction between two parties, namely the ceding party and the reinsurer. The former diversifies its insurance portfolio while the latter undertakes a portion of the risk in exchange for insurance premiums. On a global scale, reinsurance helps to stabilise the many insurance markets such as life, home, motor and health insurance markets.
THE TYPES OF REINSURANCE
Reinsurance is critical to the insurance process as it serves the purpose of spreading out significant risks. Some main categories of reinsurance are retroceding, facultative reinsurance and treaty reinsurance. Retroceding is when the reinsurer can further reinsure a part of the risk assumed. Facultative reinsurance is when a reinsurer agrees to share losses arising from a particular set of risks. If the reinsurer agrees to take on risks arising from a whole line or book of business, the agreement is known as treaty reinsurance.
THE REINSURANCE INDUSTRY IN MALAYSIA
Having a resilient reinsurance sector is vital for the nation's economy. Malaysian Reinsurance Berhad (Malaysian Re), a wholly-owned subsidiary of MNRB Holdings Berhad, is the largest national reinsurer in Southeast Asia. Malaysian Re underwrites all classes of general reinsurance business and general retakaful business. The institution has expanded its business internationally and is building partnerships with industry players across the Asian, Middle East, Africa and China markets. Head over to https://www.malaysian-re.com.my/ to find out more.