6 Advantages of Reinsurance

6 Advantages of Reinsurance

1. The original insurer can accept the risk to the extent of his limit. In absence of reinsurance, a person desiring a large amount of insurance will have to take a number of policies from several insurers. This reinsurance contract makes it possible to purchase only one policy from an insurer.

2. Reinsurance makes it possible to accept each risk for the very amount desired by the proposer and to transfer the excess above the ‘retention limit’ to another insurer.

3. The reinsurance gives the benefit of the greater stability resulting from a widespread of business. By accepting many risks and scaling down, by reinsurance, all those that are larger than the normal carrying capacity of the insurer justifies, certainty in business is substituted for uncertainty through the better application of the law of average.

4. The reinsurance makes stability in underwriting and consistency in underwriting results over a period.

5. It provides a safeguard against serious effects of conflagration.

6. The reinsurance has the effect of stabilizing income and losses over a period of years.