Reinsurance and coinsurance

Commerce study Manual STUDY MANUAL|PDF NOTES|SYLLABUS|REVISION

Re insurance can be defined as a circumstance under which a firm may decide to insure itself with another large insurance company against the risk that is covering.the following are the circumstances for its occurrence;

  • If the no of people insuring against a specified risk is large.
  • Claims arising are too high for a single firm to settle on its own.

The act of spreading risks among firms with another insurance company with which to cover specified risks whose value may be too high to be undertaken one firm e.g. insurance of ships and aeroplanes.This is also known as  coinsuranceand each firm insures only a portion of total value of risk.

The insurer who covers the largest portion of the risk is known as the leader.



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