DAY 5: PARTIES INVOLVED IN REINSURANCETariq Al-Bashatariqalbasha@outlook.com – 00962 7 9767 7418

INDEX▪ Direct Insurers

▪ Reinsurers

▪ About Tariq Al-Basha

DIRECT INSURERS▪ These are the largest buyers of reinsurance and the amount purchased partly

depends on the structure of the insurance market in each country.

▪ The size of any claim, or accumulation of claims, arising from one single event, that an insurance company retains for its own account tends to increase directly in proportion to▪ The volume and distribution of the policies issued; and

▪ The size of its reserves in relation to written premiums.

▪ Consequently, the tendency is that the greater the spread of a country’s insurance business between new and small companies, the greater the total demand for reinsurance.

▪ Consequently, changes in market structures, such as insurance company mergers in many countries, can have a significant effect on the demand for reinsurance.

REINSURERS – A BRIEF HISTORY▪ The reinsurance institutions grew up mainly in relation to marine

transport. However, it is in the fire class of business where it has developed most.

▪ The development of fire reinsurance in the second half of the 19th century:▪ The first two reinsurers to be set up, as such, were Germany’s Kolnische Ruck and

Aachener Ruck, around 1850, prompted by the Great Fire of Hamburg in 1842.

▪ The rapid development was also due to major fires in New York (1835), Germany (Memel, 1854), Switerland (Glarus, 1861) and England (Tooley Street Fire, 1861).

REINSURERS – THE LARGE REINSURANCE COMPANIES▪ If we refer to volume of business, the two largest reinsurance

companies have their head offices in Europe, specifically in Germany and Switzerland. They are followed in size by the North American reinsurers.

▪ US reinsurers are relatively small in relation to the size of the country’s market. This is because:▪ American reinsurers write most of their business for the national market and,

since the direct insurance companies are very strong financially, there is less need for reinsurance protection.

▪ The large European reinsurance companies have set up offices in the United States, where they have acquired some of the largest American reinsurers.

REINSURERS – REINSURANCE COMPANIES IN ENGLAND▪ The first companies

▪ The first reinsurance companies to be set up, such as the Reinsurance Company Limited in 1867, disappeared after a short time.

▪ English reinsurance became consolidated with the creation of the Mercantile and General Reinsurance Co. in 1907 and other companies.

▪ The reinsurance market in England▪ With the creation of these companies, British reinsurance grew to the extent that

it became a globally recognized market.

REINSURERS – THE INTERNATIONAL NATURE OF REINSURANCE ▪ Lloyd’s conducts reinsurance business internationally and is not alone in

this – in the rest of Europe too, as in almost every country in the world, there are large reinsurance companies conducting business internationally.

▪ It should be pointed out that being international is not a prerequisite for transacting reinsurance, as many reinsurers only operate on a national level.

REINSURERS – DIRECT INSURANCE COMPANIES IN REINSURANCE ▪ Whilst, so far, we have only referred to professional reinsurers, it should

not be forgotten that a large number of direct insurance companies also act as reinsurers.

REINSURERS – LLOYD’S▪ The name

▪ Lloyd’s is named after Edward Lloyd, the owner of a coffee house in London in the 17 th century where merchants who wrote marine insurance would meet.

▪ Its structure▪ According to the general concept of mercantile law, Lloyd’s is not really an insurance

and reinsurance company but a corporation made up of a large number of independent syndicates.

▪ The syndicates are formed by groups of members called names who come together and pool their resources to share a common liability.

▪ Administration is carried out by underwriting agencies that appoint underwriters to conduct reinsurance business on the members’ behalf.

▪ The corporation is managed and controlled by a committee which is elected annually.

REINSURERS – LLOYD’S (CONT.)▪ Problems

▪ This institution suffered a major financial imbalance due to various factors:▪ The large number of different underwriters: in 1981 there were around 19,000

members or names.▪ Acceptance of reinsurance business from every country in the world.▪ Delay in knowing the results of the business, as balance sheets were only published

every three years.▪ The international reinsurance situation in the early 1990s.

▪ Current situation▪ In 1997 the number of members, both individual and corporate, had fallen to 10,000.▪ A new entity called Equitas was set up which took care of controlling the results and

enabled the institution to be totally restructured.▪ The rating agencies give it a solvency rating of “good” to “excellent”.

ABOUT TARIQ AL-BASHA• Promoting entrepreneurship and

innovative SMEs in MENA Market.

• Business & Financial Modelling Consultant at several consulting firms in the Middle East.

• Business management graduate from the University of Greenwich, London – UK.