WHAT TO REINSURE? The question of what to reinsure has to be considered from both the insurer's and Reinsurers perspective.

Reinsurance replaces the risk of an uncertain large payout, with a certain low payout. The insurer must decide how much of that certain payout to accept in return for avoiding the risk of large payouts. That is, the decision to reinsure is question of how much risk to cede/retain based on financial management of the trade Off between reinsurance cost and the risk of pay out flu c t u a t i o n s . In deciding how much cover to offer, the reinsurer faces the same issues that d e t e r m i n e w h e t h e r a n i n s u r e r ' s r i s k i s i n s u r a b l e a s the insurer faced in the original contract with the i n d i v i d u a l . Q u i t e s i m p l y , i f a r i s k i s i n s u r a b l e i t i s reinsurable.Decision making process arises because, in practice, decisions on insurability are made for non-underwriting reasons for example, market building and political reasons. Therefore, the reinsurer needs access to the data on which the original insurancesdecisionswassmade.If that data is not available, the reinsurance market can fail to offer reinsurance, n o t b e c a u s e t h e y r i s k i s i n t r i n s i c a l l y n o t i n s u r a b l e b u t b e c a u s e t h e d e f a u l t decision is to not reinsure. This default is to err on the side of caution. WAYS TO REINSURE There are 3ways toreinsure Pooled reinsurance-MIUs join together in a relationship that links them only through the pool. There is typically some form of standardization across the poolt o e n s u r e t r a n s p a r e n c y a n d a v o i d o n e s c h e m e p r o f i t i n g a t t h e e x p e n s e o f another. The more heterogeneous the MIUs the better the pool advantage, and the more regionally dispersed, the lesser risk of fluctuation due to epidemic or natural disaster. Pooling enables better use of reserves Reciprocity-also enables a better use of reserves, but in this case the MIUs are known to one another and probably have other ties and commonalities.Subsidies from government or donors-this may sustain the MIU, but may also send inappropriate signals to the key players. The lessons from previous insurance experience indicates that subsidies can worsen or alleviate market failure depending on where into the system they are paid, that there may not be a perfect method to subsidies, and no matter how well run an MIU subsidy may be essential in the long run due to the gap. REINSURANCE INDUSTRY As one of the business market research papers has put it R e i n s u r a n c e i s a n international, multi-billion dollar industry that is vital to the financial stability of all types of insurance companies. It is a method of ceding part of the financial risk the direct insurers assume by accepting risk from risk owners, particularly mega risk, mainly against the earthquakes, tsunami,

tourism, etc. H o w e v e r , i n t e r m s o f m a g n i t u d e / s i z e , r e i n s u r a n c e i s h i g h l y c o m p l e x g l o b a l business and for example, it accounts for more than 9% of the total premiums generated from property. The whole mechanism of insurance and reinsurance being a dynamic process. The electronic media and internet technology have substantially added to thee f f i c i e n c y a n d s i m p l i f i c a t i o n o f m e c h a n i s m o f r e i n s u r a n c e o p e r a t i o n s . T h e increased use of information and internet technology by the insurance companies h a v e m a d e c o l l e c t i n g , c o m p i l i n g , a n d d a t a w a r e h o u s i n g o f u p d a t e d t e c h n i c a l data on millions of mega risk faster and also revolutionized the procedural input on underwritings, accounting and claims processing and settlement b y b o t h primary insurance and reinsurance. The new type of electronic system specific transactional methodology since puti n g p l a c e h a s c u t s h o r t t h e e m b a r r a s s i n g d e l a y s i n r e i n s u r a n c e a c ceptance,cessions and adjustment or settlement among the participa t i n g c o m p a n i e s . Looking to the latest trend and overwhelming success rate of multi benefit lifeinsurance products like ULIPs and pension plans, which combine risk cover with investment components.

REINSURANCE IN INDIAN PERSPECTIVE General Insurance Corporation (GIC) 1. The sole domestic reinsurance company of India 2. AAA+ Rating 3. Incorporated on 22 November 1972 4. Subsidiary companies of GIC I. National Insurance Company Limited II. The New India Assurance Company Limited III. The Oriental Insurance Company Limited IV. United India Insurance Company Limit 5. GIC Asset Management to manage I. GIC Mutual Fund II. GIC Housing Finance III. Export Credit Guarantee Corporation 6. Business Of GIC I. Domestic Reinsurance Business(73% of the Revenues II. GIC + Hannover Deal (60:40) Life Insurance III. International Reinsurance Business (27% of the Revenues) IV. Investment and Fund Management

Reinsurance Regulation in India IRDA 1. 20% of each policy with reinsurance company 2. Inter-company cession between four public sector companies. 3. First GIC and then International companies. 4. Insurance company to inform before 45 Days. 5. Not more than 10% of reinsurance premium to be placed with one reinsurer. 6. No re-insurer will have a rating of less than BBB from standard and poor

CHALLENGES FOR REINSURANCE MARKET Prior to nationalization in 1973, the reinsurance market in India had a m u c h diluted presence in the industry. The foreign companies operating in India weremanaging their risk portfolio with their parent companies overseas. To safeguardthe identified and limited risk of insurance companies, local companies createdIndia Insurance Pool.The developments after nationalizations insurance industry created a new bodywith the merger of India Reinsurance and Indian Guarantee for its reinsurancebusiness to support the technology and engineering mega projects.Some of the major issues in

accounting have been undertaken considering therecent developments in the business. The return from foreign companies are tob e i n c o r p o r a t e d w h e n r e c e i v e d u p t o 3 1 m a r c h a n d r e t u r n s f r o m i n d i a n companies and state insurance funds received as of different dates are acceptedupto the date of finalization of accounts.A r i s i n g o u t o f t h e o c c u r r e n c e o f d i s a s t r o u s l i k e t e r r o r i s t a t t a c k o n w o r l d t r a d e center etc. which brought about unprecendented loss of life and property andthereby unbearable liability and operational crisis onto the reinsurance industryworld over.T h e r e i s a w i d e d i f f e r e n c e b e t w e e n t h e r a t e s r e q u i r e d b y t h e i n t e r n a t i o n a l reinsurers and those charged by the domestic insurers leading to the pricea f f o r d a b i l i t y a s a n i s s u e . W h e r e t h e r e a r e t a r r i f s , l i k e a c a s e o f I n d i a , t h e customers cushioned from the rate of increase in the international market. Suchimpositions are required to be self absorbed.T h e I n d i a n m a r k e t i s i n a b s e n c e o f t h e c o m p e t i t i v e e n v i r o n m e n t o f t h e international reinsurers at the local level, and has depended mainly o n t h e domestic market understanding and basing probability of business ceded rather than on underwriting and risk information criteria.A regular interaction for regional co-operation has to be developed to set up aframework of the areas of co-operation and the mechanism, with this India has toc o m p e t e w i t h t h e g l o b a l r e i n s u r a n c e g i a n t s . H o w e v e r , t h e t i g h t e n i n g o f reinsurance premium in India has been attributed to the low volumes. As marketb e c o m e g l o b a l , c o u n t r y r e g u l a t o r s f a c e c h a l l e n g e s i n p o l i c y f o r m u l a t i o n f o r creating a market that develops and keeps confidence of the industry and for keeping international trade regulation intact

WHAT INDIA NEED TO DO? The opening up of the market as a whole and insurance sector in specific hasc r e a t e d a p o t e n t i a l f o r t h e I n d i a n c o m p a n i e s a l s o t o p o o l u p b i g g e r f u n d t o support the capital intensive sectors. The market has to ensure that the domesticcompanies increase their own capacities and introduce more strict guidelines asfirst hand risk carriers. Insurance companies have to establish the businessrelations with their reinsurer to prevent them from worldwide reinsurance cyclethat affects on capacity and stability.W o r l d w i d e t h e r e i n s u r e r s a r e b e c o m i n g s t r i c t o n t e c h n i c a l r e s u l t s o f t h e insurance, therefore a disciplinary watch is required on insurance business as itis the base of reinsurance. The above problems or difficulties are not very newfor a sector that is the transition.Since, some of the products are losing the importance (like proportional treaty), itis necessary to have sufficient premium income to maintain the balance and tobear unexpected losses. To have the best rates and terms from reinsures, ther i s k p r o f i l e a n d e x p o s u r e t o c a t a s t r o p h e r i s k i n f o r m a t i o n t r a n s f e r t o r e i n s u r e r should

be comprehensive and reliable.D u e t o t h e m a r k e t o p e n i n g t h r o u g h t h e W T O operation, there is net outflowexpected in the premium from the d e v e l o p i n g c o u n t r i e s a s t h e y h a v e a l o w capitalization in most of the insurance companies. This could lead to weaken theo b j e c t i v e o f t h e s e r i o u s e f f o r t s f o r t h e r e g i o n a l c o o p e r a t i o n d e v e l o p m e n t s amongst the nations.T h e e f f o r t s t o w a r d s d e v e l o p i n g a synergetic approach to model a successfulcooperation will require to work on many a r e a s s i m u l t a n e o u s l y r a t h e r t h a n organizing efforts only for one direction and loosing others, they are as follow: Pooling of financial resources Creating Investment opportunities Pooling of technical resources Joint ventures, alliance and partnership Research and developments Pooling of information Developing standard accounting system for business GLOBAL POSITION Arising out of the occurrence of disastrous like Hurricance,terrorist attack onworld trade center etc. which brought about unprecendented loss of life andp r o p e r t y a n d t h e r e b y u n b e a r a b l e l i a b i l i t y a n d o p e r a t i o n a l c r i s i s o n t o t h e reinsurance industry world over. The huge amount of losses incurred, in theaforesaid events, forced the reisurers to hike the rates substantially and alsochange the terms and conditions of reinsurance arrangements. The law andr e g u l a t i o n s g o v e r n i n g r e i n s u r a n c e o p e r a t i o n i n s o m e o f t h e a d v a n c e a n d developing countries have seen few changes, making them more stringent inr e i n s u r a n c e a c c e p t a n c e a n d c o m p u l s o r y c e s s i o n s t o t h e l o c a l r e i n s u r a n c e companies. CONCLUSION Reinsurance mean insuring again. It is transfer of insurance risk from one insurer to another. Under reinsurance the original insurer who has insured a risk, insuresa part of that risk with another insurer. Reinsurance premium is an income to ther e i n s u r e r and an expense to the insurer. Reinsurance is a good method t o diversify and distribute risks of an insurer. Reinsurance even provide

technicalassistance and rating assistance to the original insurers. Reinsurance is also acontract of indemnity. The object of underwriting is to make a reasonable profit, itis equally essential that the business ceded to reinsurers should also give them amargin. For profit, therefore, the overall quality of business accepted by directinsurers should be good.Today, the environment is more like a business than a gentlemen's club. Youh a v e m o r e p l a y e r s , m o r e d e a l s , a n d c o n t r a c t s c a n v a r y g r e a t l y b e t w e e n reinsurers. Disputes are no longer resolved by a handshake. They are morefrequent and more difficult to resolve.