The Meaning Of Reinsurance
Reinsurance
After an insurer has already undertaken to cover risk, he may insure the same subject matter with another insurance company. This process is called REINSURANCE. The insurer who undertakes to cover the insured risk is called the“DIRECT IN SURER” whiles the second insurance company with whom the direct insurer is insured is known as the“REINSURER”. The aim of the reinsurance business is to afford the direct insurer an opportunity of reducing the risk he covers, i.e. by fanning out his own risk to one as more insurance companies, so that the premium will in turn be shared by the direct insurer or ceding company and reinsurer in the ratio of the amount of the liability each has accepted to cover. If the ceding company transfers the whole of an insurance business to the insurer, the company will take over the whole premium.
The transaction between the original insurer and the reinsurance company is governed by the general principles of contract. Therefore, whilst there is contractual relationship between the insured and the original insurer, there is clearly no privity of contract between the insured and reinsurer in the contract of reinsurance. Thus, where the insured has a claim against the original insurer on a subject-matter of which part of the insurance business has passed over to the reinsurer, the assured cannot sue the reinsurer in relation to the latter’s liability under the contract of reinsurance, unless there is an express provision to the contrary in policy.
After an insurer has already undertaken to cover risk, he may insure the same subject matter with another insurance company. This process is called REINSURANCE. The insurer who undertakes to cover the insured risk is called the“DIRECT IN SURER” whiles the second insurance company with whom the direct insurer is insured is known as the“REINSURER”. The aim of the reinsurance business is to afford the direct insurer an opportunity of reducing the risk he covers, i.e. by fanning out his own risk to one as more insurance companies, so that the premium will in turn be shared by the direct insurer or ceding company and reinsurer in the ratio of the amount of the liability each has accepted to cover. If the ceding company transfers the whole of an insurance business to the insurer, the company will take over the whole premium.
The transaction between the original insurer and the reinsurance company is governed by the general principles of contract. Therefore, whilst there is contractual relationship between the insured and the original insurer, there is clearly no privity of contract between the insured and reinsurer in the contract of reinsurance. Thus, where the insured has a claim against the original insurer on a subject-matter of which part of the insurance business has passed over to the reinsurer, the assured cannot sue the reinsurer in relation to the latter’s liability under the contract of reinsurance, unless there is an express provision to the contrary in policy.
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