Elements of Insurable Risks

Types of Reinsurance

1. Facultative Reinsurance - the ceding insurer offers individual risks to a reinsurer, who may choose to accept or reject each risk 2. Automatic Reinsurance - The reinsurer must accept all risks ceded to them 3. Excess of Loss Reinsurane - reinsurer must pay only when losses exceed a certain maximum amount 4. Proportional Reinsurance - Reinsurer must pay a share of every reinsured loss

Adverse Selection

Defined as the tendency of poorer risks to seek or continue insurance to a greater extent than normal risks.

Pay on the Behalf Of

It is paid for you instead of being paid directly by you (the insurance company pays the loss)

Indemnity

Reimburstment or a paid sum after a loss is experienced

Reinsurance

Reinsurers insure other insurance companies against catastrophic losses such as earthquakes 1. The company transferring some of their loss potential tp the reinsurer is called the "ceding" company

To Be Consider an Insurable Risk:

a risk must be: 1. due to chance 2. measurable/predictable 3. based on large enough pool that the Law of Large Numbers allows for accurate prediction of loss 4. selected from a diverse, randomly selected pool of insurable risks