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INWARD REINSURANCE BUSINESS

AS PER I.R.D.A. REGULATIONS ALL LIFE & NON LIFE INSURERS IN INDIA CAN WRITE INWARD REINSURANCE BUSINESS FROM OTHER DOMESTIC INSURERS AND FROM OVERSEAS. INSURERS MUST HAVE A WELL DEFINED UNDERWRITING POLICY FOR WRITING INWARD REINSURANCE BUSINESS. DECISIONS ON ACCEPTANCE OF REINSURANCE BUSINESS SHOULD BE MADE BY PERSONS WITH NECESSARY KNOWLEDGE AND EXPERIENCE.

1.NEED FOR INWARD BUSINESS

INWARD REINSURANCE BUSINESS IS WRITTEN BY BOTH DIRECT INSURERS AND PROFESSIONAL REINSURERS.WE MAY DIVIDE THEM IN THE FOLLOWING GROUPS:i) DIRECT INSURERS ACCEPTING BUSINESS

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ii) PROFESSIONAL REINSURANCE COMPANIES iii) UNDERWRITING AGENTS WRITING BUSINESS ON BEHALF OF OTHER COMPANIES iv) LLOYDS UNDERWRITERS v) STATE REINSURANCE CORPORATIONS IN VARIOUS COUNTRIES vi) REGIONAL REINSURANCE CORPORATIONS /POOLS vii) CAPTIVE INSURANCE MARKETS WITH THEIR FRONTING.

2. OBJECTIVES FOR INWARD BUSINESS

i) TO INCREASE THE GROSS PREMIUM AND NET RETAINED PREMIUM INCOME ii) TO ACHIEVE LOWER EXPENSE RATIO BY THE MAINTENANCEOF THE VOLUME OF PREMIUM INCOME. iii) TO OBTAIN BETTER AND WIDER SPREAD OF BUSINESS BY WRITING BUSINESS FROM OVERSEAS. iv) TO BALANCE THE DRAIN OF FOREIGN EXCHANGE ON ACCOUT OF REINSURANCE CEDED ABROAD.

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v) TO EARN INVEST INCOME FROM CASHFLOW RECEIVED FROM INWARD ACCEPTANCES. vi) TO REMAIN IN TOUCH WITH THE DEVELOPMENTS AND TRENDS IN INTERNATIONAL REINSURANCE MARKET

3. UNDERWRITING PHILOSOPHY
COMPANY SHOULD LAY DOWN GUIDELINES FOR ACCEPTING BUSINESS EG. CATEGORY OF BUSINESS CLASS OF BUSINESS GEOGRAPHICAL SCOPE CRITERIA OF ACCEPTING BUSINESS PARTICULARLY PAST CLAIMS RATIO IDENTIFICATION OF COMPETENT AUTHORITY TO ACCEPT.

OTHER SALIENT POINTS UNDERWRITING PHILOSOPHY

OF

i) RECIPROCAL / NON RECIPROCAL ii) GROSS OR NET LINES EG. a) SHARES WHICH CAN BE RETAINED BY

-63HIMSELF WITHOUT RETROCESSION b) WRITE LARGER SHARES, CREATE RETROCESSION TREATY TO TAKE CARE OF SURPLUS OVER NET RETENTION. iii) TREATY OR FACULTATIVE REINSURANCE BUSINESS EXPERTISE ON BOTH TYPE OF REINSURANCE IS MUST. iv) PROPORTIONAL & NON-PROPORTIONAL NEED TO MAKE A BROAD ESTIMATE OF THE PORTFOLIO MIX. v) TERRITORIAL SCOPE DOMESTIC BUSINESS AND OR OVERSEAS MARKETS. AVOID CERTAIN COUNTRIES FOR VARIOUS REASONS RESERVATION FOR U.S./CANADIAN BUSINESS vii) CLASSES OF BUSINESS TO UNDERWRITE SHORT TAIL BUSINESS LIKE PROPERTY LONG TAIL BUSINESS LIKE LIABILITY OR CASUALTY viii)DIRECT OR THROUGH BROKERS

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ix)ACCEPTANCE LIMIT x)BINDING AUTHORITY TO ANY AGENCY OR ANOTHER COMPANY

4. RECIPROCAL TRADING
i) RECIPROCAL EXCHANGE OF REINSURANCE DATES FROM THE EARLIEST DAYS OF REINSURANCE. ii) FEW TYPES OF TREATY OR CLASSES OF INSURANCE BUSINESS LEND THEMSELVES TO THE RECIPROCAL EXCHANGE OF REINSURANCE BUSINESS. REINSURANCE GENERALLY YIELDING PREDICTABLE RESULTS IS SUITABLE. iii)THEREFORE RECIPROCITY IS USUALLY CONFINED TO PROPORTIONAL TREATIES AND IN PARTICULAR PROPERTY QUOTA SHARE AND FIRST SURPLUS TREATIES THAT ARE NOT SUBJECT TO WIDE FLUCTUATIONS IN RESULTS FROM YEAR TO YEAR. iv)A DIRECT WRITING CO. MAY BENEFIT FROM THE EXCHANGE OF BUSINESS IF BY DOING SO IT CAN WRITE A MORE

-65DIVERSIFIED PORTFOLIO OF RISKS, INCLUDING DIFFERENT CLASSES OF BUSINESSES AND WITH A GEOGRAPHICAL SPREAD WHICH OTHERWISE IT COULD NOT OBTAIN. THUS, RECIPROCITY BETWEEN TWO INSURERS CAN BE MUTUALLY BENEFICIAL, WHEN THEY OPERATE IN DIFFERENT TERRITORIES. v) IF THE BUSINESS CEDED BY ONE OF THE INSURER IS MORE PROFITABLE THAN OTHER, THE RECIPROCAL RELATIONS MAY BE TERMINATED AFTER A SHORT TRIAL. vi) EXCHANGE OF REINSURANCE BETWEEN TWO REINSURERS MEANS DISCLOSURE OF INFORMATION AND OTHER TRADE SECRETS TO COMPETITORS. vii) COMMISSION RATES AND EXPERIENCE DIFFER IN VARIOUS PARTS OF THE WORLD AND THIS MAY CREATE STALEMATE. viii) WITH THE REDUCTION IN PROPORTIONAL REINSURANCE AND

-66THE POOR RESULTS EXPERIENCED BY REINSURERS IS NOT PROVING ATTRACTIVE TO POTENTIAL RECIPROCAL REINSURERS. ix)PRESENTLY IT IS CONFINED TO A FEW MARKET SECTORS. DESPITE ALL THE RESERVATIONS ABOUT THE WISDOM OF RECIPROCITY & THE DISLIKE OF IT BY REINSURERS, THE PRACTICE STILL PERSISTS, THOUGH IN A LIMITED WAY.
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