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.

1. Theoretical Framework

1. Overview of reinsurance

1. 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.

1. Reasons for reinsurance

1. 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.

1. 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.

1. 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.