Question

• 1. List some of the reasons why insurance companies engage in the reinsurance transaction.
• 2. When entering into a legally enforceable insurance contract consideration must exist. Explain what consideration is and the form it takes in insurance contracts.
• 3. Explain the principle of subrogation. Provide a mathematical example of its use.

Answer 1

List some of the reasons why insurance companies engage in the reinsurance transaction

1) Insurance company in order to mitigate the risk do Reinsurance . Reinsurance can limit the amoutn of loss an insurer can potentially suffer . Reinsurance protects insurabce companies from financial disaster , protecting the compamies customer from uncovered loss

As per agreement or contract , Insurer pay part of the premium that they colected from their policyholders to a reinsurance company in exchange the reinsurance company agrees to cover losses above certain high amount

When entering into a legally enforceable insurance contract consideration must exist. Explain what consideration is and the form it takes in insurance contracts.

Contarct consideration - represents value that the parties to a contract give to eah other - Amount to be paid as per agreed contract . In Insurance , teh insurer promise to pay for covered losses that the Insured suffers and the insured promise to abide rules by the contract and pay the preimum

Insurance contract are " Unilateral " contracts , where only the insurer make a legally enforceable promise to pay for cobered losses . the company can not sued teh insured fro breach of contract

In case insured failed to pay the premium , the the insurer is not obliged to pay for any of the insured losses

Subrogation - Subrogation provides a legal right to a third party to colect a debt or damage on behalf of another party. With help of this , Insurance company can reover the amount of insurance claim paid to the insured cleint from the party that cause damage . This process mainly involved three parties , The insurer ( insurance company ), policymaker ( insured party ) and the party responsible for damage

The proces usually starts when the insurer pays out the losses of the insurance claine filed by the policymaker , after policymake receive the money for the claim , the insurer may start the process of collecting the amount of the clai from third party