Introduction

Insurance was created in response to a pervasive need for

protection against the risk of losses. It is feasible because it allows

many similar individual loss risks to be pooled into classes of risk.

Sometimes, however, the underwriting risk is too large to be assumed by any

one entity, even if the probability that an event will occur can be

accurately predicted. For example, a single insurance company might be

unable to cover catastrophe risks such as an epidemic or war damage because

catastrophe can sstrike a huge number of insured parties at the same time.

Reinsurance, simply defined, is the transfer of liability from the

primary insurer, the company that issued the insurance contract, to another

insurer, the reinsurance company. Business placed with a reinsurer is

called a cession, the insurance of an insurance company. The reinsurer

itself may cede part of the assumed liability to another reinsurance

company. This second transaction is called a retrocession, and the assuming

reinsurer is the retrocessionnaire.

Reinsurance contracts are entered into between insurance (or

reinsurance) companies, whereas insurance contracts are created between

insurance companies and individuals or noninsurance firms. A reinsurance

contract therefore deals only with the original insured event or loss

exposure, and the reinsurer is liable only to the ceding insurance company.

An insurance company’s policyholders hhave no right of action against the

reinsurer, even though the policyholder is probably the main beneficiary of

reinsurance arrangements.

What does reinsurance do?

No single insurance company has the financial capacity to extend an

unlimited amount of insurance coverage in any line of business. Similarly,

an insurance company is always restricted in a size of any single risk it

can safely accept. If a risk is too large for a single insurance company,

it can be spread over several companies. Insurance companies often use this

process, known as coinsurance.

Reciprocity is the practice or cession of two primary insurers. It

is the exchange of one share of business for another insurer’s business of

the same type.

Reciprocity is an attempt to maintain the same premium volume while

widening the rrisk spread.

Reinsurance is more efficient and less costly than having several

insurers underwrite separate portions of a loss exposure. It is also a more

efficient way to spread the risk among several companies. But an insurer

might decide to buy reinsurance for other reasons. Reinsurance offers

advantages in financing, capacity, stabilization of loss experience,

protection against catastrophe, and underwriting assistance.

Financing

An insurer’s limit on the value of premiums it can write is related

to the size of its surplus. When premiums are collected in advance, the

company must establish an unearned premium reserve. Reinsurance enables a

company to increase its surplus by reducing its unearned premium reserve.

This mechanism is particularly useful lo a new or growing insurance company

or to an established insurance company entering a new field of

underwriting.

Capacity

Capacity, in insurance terminology, means a company’s ability to

underwrite a large amount of insurance coverage on a single loss exposure

(large line capacity) or on many contracts in one line of business (premium

capacity). Reinsurance also allows insurers to cover larger individual

risks than the company’s capital and surplus position would allow or risks

that the company’s management would consider too hazardous.

Stabilization of Loss Experience

An insurance company, like any other business firm, likes to smooth

out its year-to-year financial results as much as possible. However,

underwriting losses can fluctuate widely in some lines of business as a

result of economic, climatic, and other extraneous reasons, or as a result

of inadequate business diversification. Reinsurance enables an insurance

company to limit year-to-year fluctuations. It is sometimes compared to a

banking operation where the insurer borrows from the reinsurer in bad years

and pays back when its loss experience is good.

Catastrophe Protection

The potential impact of a catastrophe loss from a natural disaster,

an industrial accident, or similar disasters on a company’s normal (or

expected) loss experience is the main reason for buying reinsurance. A

catastrophe loss may endanger a company’s very existence. In that case, a

reinsurance contract insures the insurer.

Underwriting Assistance

Reinsurance companies accumulate a great of information and

statistical experience regarding different types of insurance coverage and

methods of rating, underwriting, and adjusting claims. This experience is

quite useful, especially for ceding company that may want to enter a new

line of business or territory or underwrite an uncommon type of risk.

Reinsurance facilities can provide extremely valuable services for the

company entering a new market, but they are also when an insurance company

decides to stop underwriting in a particular line of business or geographic

region.

What are the traditional reinsurance methods?

The two major categories of reinsurance contracts arc facultative

reinsurance contracts and treaty reinsurance contracts.

In facultative reinsurance (single risk), the ceding company

negotiates a contract for each insurance policy it wishes to reinsure. This

type of insurance is especially useful for reinsuring large risks, that is,

those that the insurance company is either unwilling or unable to retain

for its own account.

Facultative reinsurance, by nature, involves some degree of adverse

selection for the reinsurer. It is expensive for the insurance company and

practical only when the risks arc few. It is useful when the primary

insurer has no experience with a particular risk and turns to the reinsurer

for underwriting assistance.

In treaty reinsurance, the ceding company agrees in advance to the

type, terms, and conditions of reinsurance. Treaty reinsurance affords a

more stable contractual relationship between primary insurer and reinsurer

than does facultative reinsurance. Most insurers depend heavily on treaty

reinsurance because facultative reinsurance is not practical when dealing

with a single business class or line. The reinsurer does not examine each

risk individually and cannot refuse to cover a risk within the treaty. The

treaty method is also less expensive and easier to operate and administer

than facultative reinsurance.

Although me reinsurer must accept all business cessions under the

treaty, adverse selection is less likely to occur if the insurer wants to

establish a long-term business relationship with the reinsurer. In this

case, the reinsurer follows the ceding company’s good or bad operating

results (somewhat as a banker does) over a longer period of time.

The type of reinsurance contract chosen depends on the distribution

of risks between insurer and reinsurer. There are two types of reinsurance

contract: proportional (pro-rate) or nonproportional (excess). Proportional

reinsurance can be extended through a quota-share or a surplus-share

contract. Nonproportional reinsurance can be issued for risk excess

(working XL

per risk), for occurrence excess (per catastrophic event: cat-

XL), or for aggregate excess (stop loss).

Quota-Share Contracts

Under a quota-share contract, the primary insurer cedes a fixed

percentage of every exposure it insures within the class of business

covered by the contract. The reinsurer receives a share of the premiums

(less a ceding commission) and pays the same percentage of each loss.

Quota-share contracts are common in property and liability

insurance. They are simple to administer, and there is no adverse selection

for the reinsurer. QQuota-share contracts are usually profitable for the

reinsurer because both commissions and terms are better.

A quota-share contract is a most effective means for small

companies to reduce their unearned premium reserve when taking on a new

line or class of business. A quota share is also ideal for reciprocal

treaties between insurance companies. For example, two insurance companies

with similar business volumes and profitability could each reinsure a 50

percent quota share of the other’s business. This could have substantial

diversification effects on each, particularly if they are involved in

different geographical areas.

Surplus-Share Contracts

Surplus-share contracts, like quota-share contracts, are defined as

proportional reinsurance, but the difference between them is in the way the

retention is stated. In a surplus-share contract, the retention is defined

as a monetary amount iinstead of as a fixed percentage.

As a result, in a surplus treaty, the percentage varies with the

extent of loss exposure and the limit imposed by the reinsurer on the size

of the potential loss. This reinsurance limit is usually defined as an „n-

line surplus treaty,“ which means that the reinsurer will accept

reinsurance coverage up to n times the retention amount. The surplus can be

divided among several companies.

The reinsurer would pay its share of losses in the same proportion

as its share of the premium. The surplus treaty is particularly useful for

large commercial and industrial risks. It provides a larger line capacity

than the quota-share treaty and does not require the primary insurer to

share small exposures that it can carry itself. However, iit does not confer

any unearned premium relief, which small insurers might need.

In a surplus contract, only the portion of the risk exceeding the

company’s retention is reinsured, leaving the company with a homogeneous

portfolio. The ceding company can keep more profitable business, and the

reinsurer takes on a higher share of the less-secure risks. However, the

reinsurer pays the ceding company lower commissions than under quota-share

treaties, and administrative costs are much higher.

Excess-Loss Contracts

Excess-loss (XL) contracts are different from pro-rata contracts in

that tthe ceding company and the reinsurance company do not share the

insurance coverage, premium, and losses in the same proportion. In fact, no

insurance amount is ceded under an excess-loss contract. The reinsurer is

not directly concerned about the original rates charged by the ceding

company. It pays the ceding company only when the original loss exceeds

some agreed limit of retention.

Usually, the ceding company pays the reinsurer a premium related to

the nature and extent of the coverage assumed by the reinsurer, and no

commission is paid to the ceding company. This is called the burning-cost

system.

The burning cost is a percentage calculated by dividing total

losses above the excess point in a period by the premiums for the same

period. A maximum rate and a minimum rate are applied, and a deposit

premium is paid. As in the retrospective premium, the final premium is

adjusted at year end.

Per-Risk Excess Contracts

The retention under a per-risk contract is stated as a monetary

amount of loss (not an amount of loss exposure or coverage). The reinsurer

is liable for any loss amount greater than the retention stipulated in the

contract. This amount is often subject to a limit, for example $200,000 in

excess of $50.000, under this type of treaty, the reinsurer pays aall losses

exceeding a deductible. As long as they do not overlap, more than one

excess-loss treaty may cover the same business.

Reinsurers risk excess treaties are effective in providing large

line capacity, since they suffer large losses. They are also effective in

stabilizing loss experience. In the part run, a primary insurance company

can even improve the results of an intently unprofitable business through

excess reinsurance. However, the reinsurance will probably refuse to renew

participation, and the primary insurer will pay more for any future

reinsurance.

In health insurance, per risk could have several meanings. Insurers

may face creasing exposure to major claims arising from a specific medical

treatment, which explains the growing demand for reinsurance to cover the

risk of very expensive treatments. However, a claim in health insurance is

difficult to define because the distinction between a new illness and the

consequences of an ongoing, illness is problematic. Coverage is often based

on all treatment a person receives in one calendar year.

What is nontraditional (financial) reinsurance?

Instead of limiting their business to traditional methods of

assuming and financing risks in isolation, reinsurers have developed

financial products that blend elements of reinsurance, insurance, and

capital markets. These products are based on alternative risk-transfer

solutions with longer-term and more comprehensive forms of coverage. The

objective is mainly tto protect the financial resources of the business as a

whole (balance-sheet protection), as contrasted with conventional event

coverage.

Types of Contract

A reinsurance contract can be prospective, retroactive, or both.

Under a prospective contract, the ceding company pays the assuming company

a premium in return for indemnification against loss or liability relating

to events that occur after the contract’s effective date. Under a

retrospective contract, the ceding company pays the assuming company a

premium in return for indemnification against loss or liability resulting

from events that have already occurred. This reinsurance practice, called

loss-portfolio transfer, has become very popular.

By definition, the insurance risk involves uncertainties about the

ultimate amount of any claim payments (the underwriting risk) and the

liming of these payments and the timing of this payment. A reinsurance

contract is an agreement between the ceding company and the assuming

company whereby the latter assumes all or part of the insurance risk.

Contracts that do not transfer underwriting risk are referred to as

financing arrangements or financial reinsurance.

Historically, financial reinsurance took the form of retrospective

reinsurance covering catastrophe losses and past experience. Today, the

primary focus is on prospective products, which are a mixture of banking

and reinsurance products. Their characteristics include the assumption of

limited risk by the reinsurer, multiline coverage and multiyear term,

sharing

of results with the primary insurer, and the explicit inclusion of

future investment income as a pricing consideration.

Nontraditlonal solutions generically referred to as alternative

risk transfer (ART), meet insurers’ needs for long-term planning and

balancing cash flow and resources. Coverage is limited over the entire,

multiyear term of the treaty, and risk transfer is less significant than

the timing of the payments (timing risk).

Finite-Risk Reinsurance

Finite-risk reinsurance (FR), one type of financial reinsurance,

insulates the primary insurer from the peaks and troughs of volatile

underwriting rresults during the contract period. It is a type of coverage

that combines risk transfer with a profit-sharing relationship between

reinsurer and client. Finite risk involves a limited transfer because the

client ultimately pays for most of the losses through premiums and

investment income. The reinsurer’s risk lies mainly in the untimely payment

of losses (timing risk). The multiyear nature of the contract allows the

reinsurer to use the time value of the money and to spread losses over

several years. This means that the client effectively trades today’s

underwriting income for tomorrow’s investment income.

In finite-risk reinsurance, insurers ate reimbursed a substantial

portion of the profits accruing over a multiyear period. Coverage under

finite reinsurance products is generally broad, without the list of

exclusions in traditional products. Among the most ppopular new forms of ART

are finite quota shares, which apply to business in current and future

underwriting years, and spread-loss treaties, which are used to manage

financial risks associated with payment time.

Aggregate stop-loss on a prospective basis is becoming a popular

form of finite-risk reinsurance. It is used to address a client’s exposure

to a low-probability, high-severity event. In the case of potential

catastrophe risks, the excess loss risk is partially retained by the

reinsurer, and the remainder is transferred to the capital markets via

securitiration through event-linked bonds or derivatives. Risk-sharing

partners in capital markets have been attracted to assuming insurance risks

because they are uncorrelated with the price movements of the stocks and

bonds that comprise a traditional investment portfolio.

What principles govern a reinsurance program?

The ffirst step in creating a reinsurance program for an insurance

company is choosing a correct of net retention and the limits of

reinsurance company.

If net retention is too low, the insurer’s capital and surplus are

not put to effective use. Low retention probably means lower underwriting

results and investment income but also shows a lack of involvement on the

insurer’s part. The practice of reinsuring large proportions of risks

(fronting) has been widely criticized as bad insurance practice.

If the retention level is too high, hhowever, the insurer runs a

risk of wide swings in the results and, in extreme cases, financial ruin.

The retention decision is usually based on the following factors:

• Insurer’s own resources, that is, paid-up capital and surplus

• Amount of premiums written expected to be generated by a portfolio

• Portfolio composition (size and number of policies)

• Class of business

• Geographical location and risk spread

• Insurer’s experience in the class of business

• Projected underwriting profitability

• Probability of ruin

• Company’s investment strategy

• Availability and cost of reinsurance

• Local regulations and foreign exchange controls

The four functions of reinsurance—financing, program-management

capacity, stabilization against fluctuations, and protection against

catastrophe risks—will all be needed at different times in a company’s

development. Thus, far from being cast in concrete, the reinsurance program

has to adapt as the company’s needs change.

Insurability

Some insurability problems are peculiar to the health insurance

business. To be financially viable, insurance rates must be compatible with

projected losses, and the lack of reinsurance or the inability to reinsure

often boils down to incompatibility between the reinsurance rate and the

direct rate, which is too low to make a profit or to break even.

• The low value-high frequency of some risks mmay raise premiums to

the point where coverage may not be affordable.

• The high loss variance and propensity toward catastrophe losses

from specific risks may also make rates unaffordable and increase the

insurer’s dependence on reinsurance.

• High premiums may discourage participation as well as increase

moral hazard and adverse risk selection.

Risks with poor insurability profiles are sometimes initially written at a

loss in order to build capacity. Inferior risks are frequently covered for

social development or political reasons. This is not insurance or

reinsurance problem, however, arid will not be further considered here.

Reinsurance Costs

In pro-rata treaties, the ceding commission paid by the reinsurer

to the ceding insurer varies according to the reinsurer’s estimate of the

loss ratio to be incurred and the premium volume ceded under the treaty. It

usually covers the primary insurer’s acquisition expenses without providing

a long-term commission „profit“ or incentive to the insurer to cede a

larger amount of business than necessary. Retrospective (profit-sharing)

commission arrangements are common.

In excess-loss treaties, the rate-setting procedure is more complicated

because the reinsurer expects long-term profitability. However, market

competition in reinsurance often drives reinsurance rates below the

„normal“ rate. The rate is usually defined as the expected losses divided

by the premium volume (the burning cost) and multiplied by a profit margin.

When the pprimary company’s net retention increases (a similarity with the

deductible clause), the rate also declines.

In financial reinsurance, an account is established at the start of a

finite arrangement that is maintained according to a specific formula

throughout the life of the contract. Over time, the account fluctuates

according to experience under the contract. Coverage under finite

reinsurance is generally broad and, at the beginning of the term, the

insurer may pay a higher premium which, in addition to the customary

reinsurance procedure, is invested and earns interest over a multiyear

period.

Projected investment income is taken into account in calculating

the future premium. Over time, in a limited-loss situation, finite

insurance can cost much less than traditional products. However, in case of

catastrophe risks, when the primary insurer sustains a loss, finite-risk

products afford less protection than does traditional reinsurance.

What do community-based health insurance funds need?

Rarely can microinsurance units constitute a perfectly balanced

portfolio, cither because their business volume is too small or because the

relatively large risks they cover acquire a disproportionate influence on

the portfolio. Furthermore, sometimes a variety of related insured events

cause a chain of losses with cumulative effect on the insurer.

Such adverse events can disrupt the balance of insured risks in the

portfolio, so that large discrepancies occur between

the initial,

probability-bused forecast and the actual gross results. The four functions

of reinsurance are all needed at different times in a company’s

development, and the principles of a reinsurance program apply to all

community-based health insurance funds.

Different types of contracts offer community-based reinsurance

funds different advantages:

• Quota-share. Quota-share contracts are suitable for young, developing

companies or companies entering a new class of business. Because loss

experience is limited, defining the correct premium is difficult, and

the reinsurer bears part of the rrisk of any incorrect estimates.

• Surplus. Surplus contracts arc an excellent means of balancing the

risk portfolio and limiting the heaviest exposures because retention

can be set at different levels according to the class of risk (or

business) and expected loss. This type of treaty allows the direct

insurer to adjust the acceptable risk to fit the company’s financial

situation at any time. One of the drawbacks of this type of contract

is the considerable administrative work involved in determining

retention and amount ceded.

• Excess loss. Excess loss per risk (WXL-R), almost compulsory in a

reinsurance program, is the best way for a company to hold probable

claim peaks to an acceptable level. Excess loss per occurrence (cat-

XL) is useful only for classes of business with a significant

accumulation potential. Per-risk and per-event excess loss (VVXL-E)

combines WXL-R and a cat-XL coverage, which is very useful for health

insurance risks.

• Stop-loss. The stop-loss contract is preferred over all the others for

an entire line of business or portfolio. It provides insurers with the

most comprehensive protection for the business in their retention, but

it cannot be used to guarantee a profit for the insurer. Nonetheless,

it is a useful solution where the insurer wants protection against a

real threat to its existence as a result of an accumulation of

negative influences all in the same year.

• Alternative risk transfer. ART, characterized by the provision of

funding arrangements for perceived risks, involves the long-term use

of traditional reinsurance operations and derivative instruments or

capital market operations. This is a primary reason this approach is

particularly suitable for small health insurance funds.

Timing risk is at least as important as underwriting risk in finite-

risk arrangements. This coverage smooths out current and future premium and

claims patterns. For schemes with a high social-welfare component and no

demonstrable commercial viability at the beginning of their operations,

traditional reinsurance is unlikely to be available. Finite-risk products

appear to be a viable solution here because the underwriting result is

traded over a longer investment period.

However, traditional reinsurance may still be useful with a very high

franchise to cover catastrophe risks. A catastrophe severe enough for a

high franchise to be reached occurs only once in a while, and the risk can

be commercially assessed.

Substitute for Own Funds

Substantial own funds are traditionally viewed as the mark of a healthy

financial position, but using own funds to cover peaks in risk is not

recommended. Reinsurance will serve as an aid to financing, especially for

newly established insurance companies, because in the case of finite quota-

share treaties, for example, the reinsurer shares proportionally both in

costs and the formation of actuarial provisions. Many of the insurance

schemes implemented so far in developing countries for small groups and

rural populations have not been financially self-sufficient and may require

subsidization of premiums, administrative expenses, or both.

How does a reinsurance program work?

Reinsurance assists the functioning of the law of large numbers in

two ways. First, reinsuring a large number of primary insurers allows a

reinsurance company to diversify risk in a way that a single insurer

cannot. This can be done by allowing primary insurers to underwrite a

larger number of loss exposures, by iimproving geographical spread, and by

reducing the effective size of insured exposures.

Reinsurance plays a different financial intermediation role from a

pure brokerage in several ways:

• It provides a mechanism for allocating funds to the most

efficient premium capacity.

• It enables risks to be diversified and transferred from ultimate

insurers.

• It enables changes to be made in the structure of insurance

portfolios.

These considerations apply equally to national and international

transactions, irrespective of the actors’ geographical location. The

presumption must be that efficiency in reinsurance intermediation is

enhanced to the extent that agents have access to a global system of

universal information about worldwide options, transaction costs, exchange-

rate uncertainty, and any extra risk dimension in sovereign exposure.

Conclusion

Insurance companies everywhere, regardless of type and size, use

reinsurance. It is a mechanism that allows an insurance company to share

the assumed risks with others, so as to improve the spread and moderate

fluctuations in the net results.

The reinsurance functions and methods explained in this summary

apply equally to small community-based health insurance funds. The four

functions – financing, capacity, stabilization and catastrophe protection –

are all needed to protect a company’s development. Nontraditional

reinsurance or finite-risk reinsurance are well suited to the company.

VOCABULARY

|Accept |priimti, sutikti |

|Accumulate |kauptis |

|Acquire |įgyti, išmokti |

|Adapt |prisitaikyti, adaptuoti(s) |

|Adjust |prisitaikyti, prisiderinti |

|Administer |valdyti, tvarkyti, vykdyti |

|Adverse |neigiamas, nepalankus, priešiškas|

|Afford |pajėgti, įstengti |

|Allocate |paskirti, paskirstyti |

|Allow |leisti, numanyti |

|Arrangement |rengimas, sutvarkymas, |

| |susitarimas |

|Assume |manyti, tarti, imti, prisiimti |

|Attempt |pastanga, mėginimas |

|Beneficiary |pasipelnytojas, paveldėtojas |

|Capacity |talpa, tūris, gebėjimai, |

| |kompetencija |

|Cede |užleisti, nusileisti, atsisakyti |

|Charged |pilnas, įtemptas |

|Comprise |susidėti, sudaryti, apimti |

|Computed |apskaičiuotas, apdorotas |

| |(kompiuteriu) |

|Confer |tartis, suteikti, pripažinti |

|Consequence |padarinys, rezultatas, svarba |

|Contractual |kontraktinis |

|Conventional |įprastas, tradicinis |

|Coverage |(čia) draudimo suma |

|Deduct |išskaityti, atimti |

|Defined |apibrėžtas |

|Derivative |darinys, derivatas |

|Dimension |mastas, užmojis, svarba, aspektas|

|Disaster |nelaimė, nesėkmė |

|Disclosure |atskleidimas, demaskavimas |

|Distribution |dalijimas, skirstymas |

|Divide |dalyti |

|Efficient |veiksmingas, efektyvus, našus |

|Endanger |kelti grėsmę |

|Entity |esybė, objektyvioji realybė |

|Equalize |sulyginti, suvienodinti |

|Exposure |statymas (į pavojų) |

|Extend |pratęsti, prailginti |

|Extraneous |svetimas, pašalinis, nesusijęs, |

| |šalutinis |

|Facility |palankumas, patogumas |

|Feasible |įmanomas, galimas, įvykdomas |

|Finite |ribotas, baigtinis, asmeninis |

|Fluctuate |svyruoti, būti nepastoviam |

|Frequency |dažnumas, pasikartojimas, dažnis |

|Hail |apipilti, apiberti; sveikinti, |

| |pašaukti |

|Hazardous |rizikingas, pavojingas |

|Hurricane |uraganas, audra, protrūkis |

|Impact |smūgis, poveikis, įtaka |

|Impose |paskirti, apgauti, įvesti |

|In that case |tokiu atveju |

|Inadequate |neatitinkamas, nepilnavertis |

|Intently |įdomiai, dėmesingai |

|Maintain |palaikyti, paremti, išlaikyti |

|Manage |susidoroti, sugebėti |

|Negotiate |vesti derybas, susitarti |

|Occurrence |atsitikimas, įvykis, atvejis |

|Otherwise |kitaip, kitais atžvilgiais, šiaip|

|Overlap |iš dalies uždengti, iš

dalies |

| |sutapti |

|Percentage |procentinis dydis, dalis |

|Pervasive |sklindantis, plintantis |

|Portfolio |portfelis, aplankas, ministro |

| |pareigos |

|Portion |dalis, porcija |

|Predict |išpranašauti, numatyti |

|As right as rain |visiškai atsigavęs |

|Ratio |santykis, proporcija |

|Reciprocity |abipusiškumas, tarpusavio sąveika|

|Recoverable |kompensuojamas, grąžintinas, |

| |atgautinas |

|Reduce |sumažinti, susilpninti |

|Refer |minėti, kalbėti |

|Refuse |atsisakyti, nepriimti, atmesti |

|Regard |dėmesys, pagarba, nuolankumas |

|Relate |susieti, sutarti |

|Require |reikalauti |

|Response |atsakyti |

|Restrict |apriboti |

|Retained earnings |nepaskirstytas pelnas |

|Retention |išlaikymas, išsaugojimas |

|Selection |atrinkimas |

|Share |dalis, akcija |

|Similarly |panašiai, taip pat |

|Smooth |ramus, vvienodas, sklandus |

|Spread |paplitimas, erdvė, plotis |

|Stipulate |kelti sąlygą |

|Subsidies |subsidija, dotacija, asignavimas |

|Substantial |esminis |

|Sufficient |pakankamas, užtenkamas |

|Suitable |tinkamas |

|Surplus |perteklius |

|Therefore |dėl to, todėl, taigi |

|Threat |grasinimas, grėsmė |

|Transaction |sandoris |

|Treatment |elgesys, traktavimas |

|Treaty |sutartis, susitarimas |

|Uncertainty |netikrumas, neaiškumas, |

| |nepastovumas |

|Uncorrelated |nekoreguotas |

|Unearned income |nedarbo pajamos |

|Unfavorable |nepalankus, neigiamas |

|Viability |gyvybingumas, daigumas |

|Volatile |kintamas |

|Whereas |tuo tarpu, kadangi |

SYNONYMS

1. Unfavourable: negative, minus, adverse;

2. whereas: present, while, meanwhile, spell;

3. treaty: contract, pact, agreement;

4. vvolatile: alternate, variable, changeable, mutable, choppy, unequal;

5. threat: menace, combination, thunder;

6. surplus: excess, abundance, overstock, plenty, overplus, glut;

7. share: part, section, half, portion, interest, partition;

8. smooth: quiet, calm, tame, cool, easy, steady, peaceful;

9. otherwise: anew, aalias, differently, else, or, contrary;

10. reduce: slow, relieve, abate, trim, impair, extenuate, lessen;

11. regard: note, attention, heed, consideration, assiduity;

12. adjust: adapt, tune, supple, hew, trim, specialize;

13. hazardous: wildcat, perilous, risky, dodgy, touchy;

14. disaster: distress, evil, fatality, bane, plague, jinx, black ox, bad

luck;

15. attempt: pull, trouble, effort, tug;

16. acquire: master, learn, pick;

17. substantial: fundamental, vital, radical, material, drastic essence;

18. confer: size, bargain, negotiate, consult, parley, powwow;

19. capacity: bulk, volume;

20. divide: quarter, share, section, partition, distribute.

QUESTIONS

1. Why the insurance was created?

2. What are advantages and disadvantages of the reinsurance?

3. What process is known as coinsurance?

4. What are the traditional reinsurance methods?

5. What does capacity iin insurance terminology mean?

6. What does called the burning-cost system?

7. On what factors the retention of decision is usually based?

8. What four functions of reinsurance do you know?

9. How do you think, why reinsurance companies need these functions?

10. How does a reinsurance program work?

11. How can you say other words finite-risk reinsurance?

12. What is the practice of cession between two primary insurers?

13. How does facultative reinsurance work?

14. How does treaty reinsurance wwork?

15. How does treaty reinsurance method differ from facultative

reinsurance?

16. How does benefit spread between insurer and reinsurer?

17. What does the insurance company do if the reinsurance company

doesn’t adopt all left risk?

18. What is the first step of creating a reinsurance program?

19. What are the differences between quota-share contracts and surplus

contracts?

20. In what document are forwarded all details of every risk ceded to

the reinsurer?

LITERATURE