Occasionally Insurer X will reinsure part of Insurer Ys risk

Occasionally, Insurer X will reinsure part of Insurer Y’s risks, and Insurer Y will reinsure part of Insurer X’s risks. Doesn’t this seem like merely trading dollars? Explain.

Solution

When and insurer insures risks which are beyond his control, he  /shemay get  whole or part of his /her risk re insured with other insurers.

Reinsurance is a contract between the re - insured and the re  - insurer.  The insured, under the original policy, has nothing to do with the re-insurer.  Once the insurer has indemnified the loss to the  insured he /she can, in turn, claim the loss from the re -insurer.  The re - insured has insurable interest in the subject matter of the reinsurance contact to the extent of the amount insured by him under the original contract of insurance.  A contract of re - insurance is a contract of indemnity but it is dependent on the original contract of insurance.

Example X has insured property worth $500,000 belonging to  M, N, O, P .  He/ She  feels that the risk involved is high.  So again he/she re - insures with Y company for $250,000.  This is a contract of reinsurance.  A,B,C, and D are insured and X is an insurer. X is also called re -insured and Y is the re- insurer