Reinsurance Activities of Vietnam National Reinsurance Corporation
Essay by Hanh Nguyen • November 28, 2016 • Case Study • 4,058 Words (17 Pages) • 1,044 Views
Essay Preview: Reinsurance Activities of Vietnam National Reinsurance Corporation
FOREIGN TRADE UNIVERSITY
FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS[pic 1]
[pic 2]
MIDTERM REPORT
REINSURANCE ACTIVITIES OF
VIETNAM REINSURANCE CORPORATION
Group members: Dang Lan Anh 1311150003
Nguyen Thuy Hanh 1311150043
Nguyen My Linh 1311150072
Le Thi Thao My 1317150093
Bui Ha Phuong 1317150109
Pham Mai Phuong 1315150112
Instructor: Hoang Thi Doan Trang, MA
Class: TMAE308.1
Hanoi, May 2016
TABLE OF CONTENTS
Introduction
Chapter 1: Theoretical Framework
1.1. Overview of reinsurance
1.1.1. Definition
1.1.2. Reasons for reinsurance
1.1.3. Types of reinsurance
1.2. Overview of Vietnam National Reinsurance Corporation
1.2.1. Historical milestones
1.2.2. Organizational structure
Chapter 2: Findings and Analysis of Reinsurance Activities of VINARE
2.1. VINARE’s clients
2.2. Premiums – Net revenue from insurance activities of VINARE
2.2.1. Net Insurance Premium
2.2.2. Commission income from outward reinsurance and other income from insurance activities
2.3. Evaluation - SWOT analysis
2.3.1. Strengths
2.3.2. Weaknesses
2.3.3. Opportunities
2.3.4. Threats
Chapter 3: Recommendations
3.1. VINARE development plan in 2016
3.2. Recommendations for development solutions
Conclusion
References
Introduction
Reinsurance plays an important role for insurance companies. Insurance companies could take advantages of reinsurance to increase underwriting capacity, stabilize profits, reduce the unearned premium reserve, obtain protection against catastrophic losses, etc. The advantages of reinsurance depend on each type of reinsurance.
In this paper, our group will clarify reinsurance activities of Vietnam National Reinsurance Corporation (VINARE) – one of the first and biggest reinsurance companies to analyze the impacts of this company to others and developing trend of the company. Besides, through analyzing the proportion of reinsurance service of the company, we also point out VINARE’s reinsurance market and its environment. Finally, with our analysis of the current situation of the company, we will map out some recommendations for the company to reduce risks and develop in the future.
Theoretical Framework
Overview of reinsurance
Definition
Reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance.
The primary insurer that initially writes the business is called the ceding company. The amount of insurance retained by the ceding company for its own account is called the retention limit or net retention. The amount of the insurance ceded to the reinsurer is a cession. Finally, the reinsurance in turn may reinsure part or all of the risk with another insurer. This is known as a retrocession. The second reinsurer is called retrocessionaire.
Reasons for reinsurance
Increase underwriting capacity
Reinsurance can be used to increase the insurance company’s underwriting capacity to write new business. The company may be asked to assume liability for losses in excess of it retention limit. Without reinsurance, the agent would have to place large amounts of insurance with several companies or not accept the risk. Reinsurance permits the primary company to issue a single policy in excess of its retention limit for the full amount of insurance.
Stabilize profits
Reinsurance is used to stabilize profits. An insurer may wish to avoid large fluctuations in annual financial results. Loss experience can fluctuate widely because of social and economic conditions, natural disaster, and chance. Reinsurance can be used to stabilize the effects of poor loss experience. For example, reinsurance may be used to cover a large exposure. If a large, unexpected loss occurs, the reinsurer would pay that portion of the loss in excess of some specified limit. Another arrangement would be to have the reinsurer reimburse the ceding insurer for losses that exceed a specified loss ratio during a given year. For example, an insurer may wish to stabilize its loss ratio at 70%. The reinsurer then agrees to reimburse the ceding insurer for part or all of the losses in excess of 70% up to some maximum limit.
Reduce the unearned premium reserve
For some insurers, especially newer and smaller companies, the ability to write large amount of new insurance may be restricted by the unearned premium reserve requirement. The unearned premium reserve is a liability item on the insurer’s balance sheet that represents the unearned portion of gross premiums on all outstanding policies at the time of valuation. In effect, the unearned premium reserve reflects the fact that premiums are paid in advance, but the period of protection has not yet expired. As time goes on, part of the premium is considered earned. It is only after the period of protection has expired that the premium is fully earned.
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