Why do Insurers purchase reinsurance?

Why do Insurers purchase reinsurance?

Why do Insurers purchase reinsuranceWhere there is life there is a risk this is the most common saying in the life insurance industry of the country.


The reasons for buying reinsurance varies insurers by insurers, but the most common reason is to spread riks, which is again complying with basics of insurance.


An insurance company is the risk carrier of the insured once a time it gets overburdened or overexposed to risks, which requires being spread.

So, Insurance Company requires insurance product to purchase for her own protection an internal to relieve from the catastrophic event in terms of balance sheet protection of the company. From the insurance companies perspective the necessity for insurance lies in the following points:


  1. Insurance company at the first phase try to maintain the underwriting performance I mean it wants to reduce the fluctuation of underwriting result and try to maintain the capital or to protect the capital and the balance sheet.
  2. All types of technological and legal changes made it easy fluctuation of results or impacts the underwriting efficiency which required to be reinsured properly to protect their balance sheet.
  3. From the underwriting perspective, incorrect assessment of risks can only be mitigated by reinsurance.
  4. in some cases, it may be statutory and compulsory by the state of the law in the European market
  5. Rating Agencies like am best also look into the reinsurance protection purchased by particular Insurance Company
  6. In this company, there is more confidence from the shareholder
  7. Maintenance liquidity in terms of a large number of Claims from a single event.
  8. At the same time, they want to maintain profit for the shareholders


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