Basic Terms and Concepts

reinsurance: Reinsurance refers to insurance purchased by an insurance company to cover all or part of certain risks on insurance policies issued by that company.

cession: The portion of the risk transferred on an individual policy or contract is known as a cession.

reinsurer: Reinsurer agrees to indemnify another insurance company, referred to as the ceding company.

retrocession: Retrocession refers to the process by which a reinsurance company purchases an insurance scheme from another reinsurance company to cover its risks.

retrocessionaire: A reinsurance company that accepts or takes a retrocession.

reinsurance treaty: The risks transferred and terms of the arrangement are defined in a written legal agreement between the ceding company and the reinsurer; this agreement is commonly known as a reinsurance treaty.

graph LR
    A(Individual) -- "pays premiums 
 purchases insurance policies" --> B([Ceding Company])
    
    B -- "provides policy benefits" --> A
    
    B -- "pays premiums 
 sells policy to individual and cedes to reinsurer" --> C([Reinsurer])
    
    C -- "provides policy benefits" --> B

    C -- "pays premiums 
 accepts risk from Reinsurer" --> D([Retrocessionaire])
    
    D -- "provides policy benefits" --> C

The fundamental principle of reinsurance is that a transfer of an insurance risk occurs.

graph LR
    A{{reinsurance}} -- "determined
by" o--o definition{definition}
    A -- "applied
to" o--o application{"Application"}
    
    %% transfer
    definition -- "defined
by" o--o transfer[having transfer of insurable 
economic risk]
    subgraph What drives reinsurance transactions?
    transfer -- "yes" --> is_reins(reinsurance transaction)
    transfer -. "drives" .-o is_reins
    transfer -- "no" --> not_reins(financing transaction)
    end

    %% application
    subgraph applications of reinsurance
    application -- "types" o--o app_risk("risk management")
    application -- "types" o--o app_fp("financial planning")
    application -- "types" o--o app_cm("capital management")
    application -- "types" o--o app_st("meeting strategic objectives")
    end

Classification of Reinsurance

to be continued…