Reinsurance (Introduction)
Reinsurance is one of insurance kinds and the major mechanism on risks redistribution. Reinsurance allows to compensate fluctuations and to reduce damage potential. It is a system of economic relations according to which the insurer, accepting to insurance on them (in view of the financial opportunities), transfers risks, a part of the responsibility on the coordinated conditions to other insurers with the purpose of creation of whenever possible balanced insurance portfolio, financial stability maintenance and insurance operations profitability.
How does it work? Let’s consider the certain insurance company working in the certain region. In current period the insurance company regularly carried out of the obligations. But suddenly powerful downpours have fallen upon region; the rivers have overflown banks and have flooded practically all. During one moment the sums on payments have exceeded the insurance fund and the company was not able to pay them.
Now we shall assume, that understanding this problem, the company has reinsured the risks in the large Russian company, working in all territory of Russia. In that case, the regional company will pay only a part of the sum, and the rest will be paid by the large company for which this payment will not be catastrophic as it insures not only the given region.