Facultative premium income
Facultative premium income refers to the premium income obtained by a reinsurance company through reinsurance after undertaking the risk. The reinsurance company accepts a portion of the risk from the original insurance company and pays premiums to the original insurance company. This portion of the premium income is called facultative premium income.
Definition: Reinsurance premium income refers to the premium income that a reinsurance company obtains by reinsuring risks after underwriting them. The reinsurance company accepts a portion of the risk from the original insurance company and pays premiums to the original insurance company. This portion of the premium income is known as reinsurance premium income.
Origin: The concept of reinsurance originated in 17th century Europe when insurance companies began transferring part of their underwritten risks to other insurance companies to spread the risk. With the development of the global insurance market, reinsurance has gradually become a standard risk management tool.
Categories and Characteristics: Reinsurance premium income can be divided into two main categories: proportional reinsurance and non-proportional reinsurance.
- Proportional Reinsurance: The reinsurance company and the original insurance company share premiums and claims in proportion. For example, if the original insurance company transfers 50% of the risk to the reinsurance company, the reinsurance company will also receive 50% of the premium income.
- Non-Proportional Reinsurance: The reinsurance company only assumes risk when claims exceed a certain amount, resulting in lower premium income. This method is usually used for high-risk insurance businesses.
Specific Cases:
- Case 1: An original insurance company underwrites fire insurance for a large factory with a total premium of 1 million yuan. To spread the risk, the original insurance company transfers 60% of it to the reinsurance company. The reinsurance company thus receives 600,000 yuan in reinsurance premium income.
- Case 2: An original insurance company underwrites marine insurance for a cargo ship with a total premium of 2 million yuan. Due to the high risk of the cargo ship, the original insurance company chooses a non-proportional reinsurance method, transferring the portion exceeding 1 million yuan to the reinsurance company. The reinsurance company thus receives lower premium income but only assumes risk when claims exceed 1 million yuan.
Common Questions:
- Question 1: Does reinsurance premium income affect the profitability of the original insurance company?
Answer: Reinsurance premium income reduces the premium income of the original insurance company but also lowers its risk exposure, helping to stabilize profitability. - Question 2: How does a reinsurance company determine the amount of reinsurance premium income?
Answer: Reinsurance companies usually determine the amount of reinsurance premium income based on risk assessment, historical data, and market conditions.
