Role of reinsurance in the setting of insurance in the World
Insurers also need protection against risk. That is why reinsurance has developed in last two centuries. At first, it led insurers to reinsure on a mutual basis and Lloyds was the prototype of a market in coinsurance. However, reinsurance is a separate contract between the insurer and the reinsurer. The insurer assumes the entire risk, even in case of failure of the reinsurer. Anyway, to make the development safer, or to minimize risk, reinsurers can reinsure to other companies, which allows an even wider distribution of risks.
Economic development in the last centuries introduced new risks and larger risk. For example ships, their value was of little importance compared to the cargo. Not so with the construction of the steamship. That meant the insurance of large vessels became more difficult. Similarly, fire insurers had greater risk because the world was building bigger factories, shops and warehouses. Industrial risks change and greater risk undertaken. These new risks were a major problem for the insurance companies. The situation of many of them became unwarrantable.
Reinsurance developed network in the world. With a great conflict with each country because their own laws and traditions. That is why, the need for insurers taken different forms. In Anglo-Saxon countries, like England, coinsurance prevailed, with a large centralized Lloyds insurance market. In continental Europe was different with the first marine reinsurance contracts dating from the eighteenth century.
Though, reinsurance grew more in the branch of the fire insurance. The development of the manufacturing system, fire hazards demanded in the last third of the nineteenth century an unprecedented development of the insurance business. Nonetheless, reinsurance developed with poor financial capability so it was slow its improvement. Insurers simply adopted different premiums according to specific risk and limit their commitments to well-defined areas. In addition, unlike mutual, very active in the fire risk, insurance companies could not ask for help to their insured in case of exceptional losses, so had to develop more coinsurance or the reinsurance branch.
As coinsurance showed only limited capacity and could harm business confidentiality, insurance companies then had the idea of creating companies specializing in reinsurance, whose role would be to take big risks. Finally, developing retrocession that is far more ceding. That is to spread worldwide between many correspondents able to absorb a certain amount of risk.
The industrial revolution and the concentration of capital that resulted in the nineteenth century favored the outbreak of the first professional reinsurance. Companies of non-marine risks on the continent, especially in Germany and Switzerland. Today the major companies in reinsurance come from both countries: Munich Re and Swiss Re.
- Leonardo LC Caruana, University of Granada, firstname.lastname@example.org, Spain
- André AS Straus, Sorbonne University Paris 1, email@example.com, France
- Robin RP Pearson, University of Hall, R.Pearson@hull.ac.uk
- Takau TY Yoneyama Japan, University Hitotsubashi University, firstname.lastname@example.org
- Jurii JP Petrov, Unversity of Moscow, Petrov J.A."
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