Re Insurance Project

8/4/2019 Re Insurance Project

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PRESENTED TO:

SIR LIAQAT ALI KHAN

PRESENTED BY:SIDRA MUNIR Mi09MBA002

AYESHA YASIN Mi09MBA008

SADIA AKBAR Mi09MBA014

HADIA HUSSAIN Mi09MBA037

MADIHA AFZAL Mi09MBA041

SHUMAILA GAFOOR Mi09MBA045

TAYYABA RAFIQUE Mi09MBA049

ORGANIZATION SELECTED:

ATLAS GENERAL INSURANCE COMPANY

TOPIC:

REINSURANCE ARRANGEMENTS AT ATLAS INSURANCE COMPANY



HISTORY AND DEVELOPMENT OF

REINSURANCE

Introduction

During the past few years there has been a quickening of interest

internationally in the major aspects of reinsurance history, theory and

practice. The peculiar development of the national and international

economy of the European countries since the World War has apparently

made reinsurance the backbone of the whole of private property insurance.This accounts far the greatly extended literature on the subject in recent

years. Classic doctrines of risk, theorems in the calculus of probabilities,

principles of insurance law, long neglected, are being brought forward by

writers on reinsurance. There is vitality and depth in recent reinsurance

literature which has been lacking in the literature of the direct lines for

many a decade.

Fundamentals

In the most widely accepted sense, reinsurance is understood to be that

practice where an original insurer, for a definite premium, contracts with

another insurer (or insurers) to carry a part or the whole of a risk assumed

by the original insurer. By insurers we mean all persons, partnerships,

corporations, associations, and societies, associations operating as Lloyd's,

inter-insurers or individual underwriters authorized by law to make

contracts of insurance. We may define insurance as an agreement by whichone party, for a consideration, promises to pay money or its equivalent, or

to do an act valuable to the insured, upon the happening of a certain event

or upon the destruction, loss or injury of something in which the other

party has an interest. The insurance business is the business of making and

administering contracts of insurance.



R isks Carried by the Insurer

The need for reinsurance arises out of the fact that a first or primitive

insurer bears two distinctly different major risks

(1)

The risk that the events insured against will happen among a number of

homogeneous risks

(2)

The risk that certain events insured against will happen among a

heterogeneous group of risks to one or several insured¶s entitled by contract

to an exceptional payment in money or its equivalent, or entitled toexceptional, costly service.

Purposes of R einsurance

Reinsurance achieves to the utmost extent the technical ideal of every

branch of insurance, which is actually to effect

(1) The Atomization

(2) The Distribution

(3) The Homogeneity of Risk

Reinsurance is becoming more and more the essential element of each of

the related insurance branches. It spreads risks so widely and effectively

that even the largest risk can be accommodated without unduly burdening

any individual.

One of the major purposes of reinsurance is to permit the original insurer

at least to break even on his transactions.



History of R einsurance

The earliest reinsurances first appeared in transport, especially marine

insurance, at a comparatively late date (14th or 15th centuries). Marine

insurance in antiquity was conducted chiefly by individuals, more or less ina speculative manner, without a statistical foundation and without

retrospective data on loss experience. Single ships and their cargoes in

ancient times often had a value disproportionately large to other private

holdings, and the whole of the private fortune of an insurer often hung on

the outcome of a single voyage or marine adventure. The perils of the sea

were greater also, considering the rudimentary state of the shipbuilder's

art.

It can readily be understood why marine underwriters wanted someone toshare their risks. After having effected insurances, whether on the ship, on

the cargo or on both, or on the lives of the captain and crew, an underwriter

often would become worried and try to sell parts of his contract to others

and necessarily at a higher rate. At first risks on parts of voyages were

assigned to others, usually the more dangerous parts.

First R ecorded R einsurance Contract

The first reinsurance contract on record relates to the year 1370, when an

underwriter named Guilano Grillo contracted with Goffredo Benaira and

Martino Saceo to reinsure a ship on part of the voyage from Genoa to the

harbor of Bruges. Grillo offered to retain the risk on the voyage through the

lk~editerranean and to transfer to Benaira and Sacco the risk from Cadiz

through the Bay of Biscay and along the French coast. Other arrangements

of this kind were, no doubt, made in single instances for many years, but

reinsurance contracts in the modem sense of the word were unknown.

As early as the twelfth century, marine insurance began to be transacted

through the so-called "Chambers or Exchanges of Insurance," which had for

their object, first, the promotion of the marine insurance business on a

solid basis and, second, the settling of disputes arising among merchants



and others concerned in bottomry and respondent contracts. In later years,

these Chambers or Exchanges of Insurance became corporate bodies and

instead of remaining confined to the original function of regulating and

registering insurance made by others, actually undertook an insurance

business themselves. With the establishment and functioning of Lloyd's in1710, there was a marked decline in the transaction of insurance business

through these Chambers or Exchanges.

There is a suggestion of reinsurance practice in the "Antwerp Customs" of

1609. Some mention of reinsurance practice is to be found also in the

"Guidon de la Mer," a code of sea laws in use in France from a very early

date. These marine regulations were consolidated and published at

Bordeaux in 1647, and at Rouen in 1671. The author of the consolidations

was said to have been Cleirac.

With the shift of centers of commerce from the south, south west and west

of Europe to the north, England's foreign trade grew. Marine insurance

followed in its wake. Some underwriters found they could effect

reinsurance with others. Underwriterswere accustomed to assign parts of

risks to others at lower rates, and these reinsurers had hopes of finding

other persons who would take parts of these risks at still lower rates. This

traffic in premium differences was so greatly abused that in 1746 it was

forbidden. (19 Geo. II, c 37, Section 4). Under this statute, reinsurance was

permitted only if the party whose risk was reinsured was insolvent,

bankrupt or in debt and if the transaction was expressed in the policy to be

a reinsurance. The statute was more or less of a dead letter and was

repealed by 27 and 28 Vict. c 56, Section I on July 25, 1864.



PROJECT

REINSURENCE

A RR

ANGEME

NTSOF

ATLAS GENER AL

INSUR ANCE

COMPANY



R esearch Questions

The questions that were asked by me and other group members regarding

the reinsurance arrangements of ATLAS GENERAL INSURANCE

COMPANY were as follows;

o W hat are there reinsurance arrangements?

o The type of reinsurance they use at ATLAS?

o Preferable reinsurers of ATLAS?

o The comparison of reinsurance ceded and claim

recoveries?

o W hether the company itself is accepting reinsurance

business or not?

o Are the present arrangements adequate or not?

Now below we will discuss all the answers that we get from the sources.



W hat are their reinsurance arrangements?

In the answer of this question we were told that

YES they do get reinsurance for there products that are majorly

o FIRE INSURANCE

o MARINE INSURANCE

o MOTOR INSURANCE

o ENGINEERING INSURANCE

But the reinsurance business they place is with international reinsurance

companies not the reinsurance companies in Pakistan. That will be

explained further in next sections of project.

Types of reinsurance used at Atlas Insurance?

The types of reinsurance used at Atlas insurance company are

o Facultative reinsurance

o Surplus treaty reinsurance

o Excess of loss reinsurance

FacultativeR einsurance

³It is a type of reinsurance in which

each risk is covered or reinsured

individually taking its individual

particulars in mind´

Now we will see that how it is used in Atlas General Insurance Company



Use at Atlas Insurance

Facultative Reinsurance is used by the company where it is not being

covered by the Treaty reinsurance arrangements of the company.

The risk exceeding the treaty reinsurance is placed under facultative typeoff reinsurance.

It is mostly in fact entirely placed outside the country, The reason behind

this fact is that our Pakistani reinsurance companies are not authorized for

Facultative reinsurance arrangements. So the payments of premiums to

Reinsurance companies are made by the way the way of Remittances in

foreign bank accounts.

Surplus treaty R einsurance

³It is a type of reinsurance

in which reinsured could

cede only those risks over

a certain size .i.e. that are

surplus to its retention´

it is a type it is on reinsured¶s will that which of the risk is to be placed with

reinsurers and which risk is to be retained with himself means no

reinsurance.

Now we will see how it works at Atlas Insurance.


Surplus treaty reinsurance is used at Atlas mostly for the Property

Insurance. That the risk they think is of higher values or sustains high

degree of risk is placed with reinsurance companies abroad.



Right now there are a number of Surplus Treaties, which Atlas insurance

has placed with international reinsurance companies and are preceding.

A definite percentage of each risk placed is accepted by Atlas itself and the

rest is demanded or claimed by Reinsurers working abroad. Payment of

premiums is made by the way of foreign currency remittances in foreign

banks.

Excess of Loss

³The balance of any loss which

ex

ceeds that agreed limit will bemet by reinsurers, usually up

to a contractual maximum that

is termed as layer and the

amount retained as deductible´

It is basically a Non-Proportional type of Treaty reinsurance. where certain

limit is retained by reinsured itself and over and above amount is to be born

by reinsurers in the form of layers.

If there are more than one layers then all of these layers may be accepted by

the same reinsurers or may be by different reinsurers


It is used at Atlas Insurance for placing the risk or reinsurance relating the

Motor risks. It is also placed outside the country not in Pakistan.



PreferableR einsurers of the Atlas Insurance?

The reinsurers that are preferred by the Atlas are followings;

Now we will discuss all of these one by one;

SwissR einsurance Company

They are a leading and highly diversified re/insurance company. Theirinnovative products and services are tailored to meet the preciserequirements of Property & Casualty and Life & Health clients. As a pioneerin insurance-based capital market solutions, They combine financialstrength and unparalleled expertise to create tangible client benefits.

R atings As a reinsurer Swiss re is the one of the leading reinsurers of the

world. Due to their quality services its rating as reinsurer is A.



Atlas¶s R eason for Preference

When we went in to the fact that why is Swiss re beingpreferred by the Atlas Insurance, The reason we came to know was it is oneof the top 5 world¶s best reinsurers.Their customer relationship, claim history, financial strength, and many other facts are perfectly matching with the Atlas Insurance.That¶s why it is one of the major choices of Atlas Insurance.

Hannover R uckversicherung AG

Hannover Re, with a gross premium of around EUR 11 billion, is the third-largest reinsurer in the world.

It transacts all lines of non-life and life and health reinsurance and has a

network of subsidiaries, branches and representative offices on all five

continents with a total staff of roughly 2,200.

R atings

The rating agencies most relevant to the insurance industry have awarded

Hannover Re very strong insurer financial strength ratings (Standard &Poor's AA- "Very Strong" and A.M. Best A "Excellent").

Atlas¶s R eason for preference

Atlas Insurance prefer the Hannover Re for the following reasons

o Strong market positioning - one of the leading reinsures worldwide

o

Top rating (S&P: AA-; A.M. Best: A) ensures attractive new businesso Approved strategy: volume is vanity, profit is sanity

o Strong risk management both qualitative and quantitative



Tokio Marine & Fire Insurance Company

It is one of the well known reinsurers of the world

and specially Japan. Its basic specialization is in Fire and Marine

reinsurance. So Atlas prefer it in any such kind of Reinsurance required.

R atings

It is renowned reinsurer so is granted higher ratings by rating agencies

relating to insurance industry. The ratings granted to it is A .

Atlas¶s R eason of Preference

Now the point comes that why it is preferred by Atlas so the answer for thisquestion is that Atlas itself is basically an Japanese Group of companies.

That¶s why it has preferred to work with Japanese reinsurer. Other facts are

there too. That is its financial stability, Better strategy, Ratings worldwide,

and many others.

That¶s why it is one of the major choices of Atlas Insurance.

Sompo Japan Insurance Incorporation

It is one of the leading reinsurers of the world. Having an extended

network of branches. That means they have extended business and

products. Now Sompo Japan and Nipponkoa Insurance have established

the Joint Holding Company, NKSJ Holdings, Inc.

R atings

Its Ratings according to rating agencies of Insurance industry is A.

Atlas¶s R eason of Preference

The point is one because of their Japanese Incorporation, their

status in market, ratings.



The comparison of R einsurance ceded & Claim

R ecovery?

AS per the answer of this question we were told that from the reinsurers as

are described above Claims recovery has not been a matter of dispute ever.

The reason is their good relationship and the market status of both of these

organizations.

Method of Claim R ecoveries

On studying the organization¶s working we

came to know that the premiums are paid by the way of foreign

remittances, into the foreign currency accounts of the reinsurers.

Now the method by which the Claim is received, the claim is settled after a

decided period of time, By the way of settlement of accounts. That means

the accounts maintained are exchanged after a fix period of time showing

debit or credit balance. Which means either the payment is to be made or it

is to be received.

The major point of discussion was the comparison of business ceded and

the claim recoveries for each class of business. That is explained as under

For Motor insurance where the frequency of accident is higher the business

ceded is almost equitable to the claim recoveries.

For Marine insurance that is mostly ceded with Tokio Marine & Fire

Insurance Company, its frequency is quite low. Business ceded is of higher

value but claims are not frequent. But it is taken to prevent the company,

because although it is of low frequency the loss is sever.

For Fire Insurance the claims are frequent as it is of high frequency, Soaccordingly is business ceded. For this Class of business only huge risks are

presented before reinsurer.

For Engineering Insurance claims are not frequent but are sever. So

business are ceded but recoveries frequency is low.



Is Atlas itself accepting R einsurance or not?

As the question arise that either company itself issue reinsurance or not,

The answer of this question that we get was Atlas Insurance is itself a

Captive Insurance Company of Atlas Group of companies.

So, basically it is formed to cover the risks of its parent group of companies.

As far as the question of reinsurance arise so its answer is

YES they accept Reinsurance business but not at higher level so they may

be known as Reinsurers .

Are present arrangements adequate?

As the Atlas has maintained its reinsurance arrangements with leadreinsurers of the world so it maintaining a very strong reinsurance

arrangements that is according to the needs of the time that have graded

Atlas as a leading insurer of Pakistan.

As far as improvements are concerned, always there is a room for

improvements. But still Atlas is a Competing Insurer of Pakistan.



OBJECTIV ES OF STUDY

All the study that we have made was made to know about following facts;

o The R equirements forR einsurance

o R einsurance arrangements mostly used

o R einsurance arrangements of Atlas

o R einsurers Preferred

o R easons for Preference

o PakistaniR einsurance Industry



Methodological Notes

Following given are the methods and sources by which we get our data

regarding this project;

Source of Data

The sources by which we collected Data

o Personal Visits

o Official website of ATLAS INSUR ANCE

COMPANY

Limitation of Data

Reinsurance is a topic that is spread widely, it was not possible for us to

cover the topic completely. We have limited our data up to following points

Types of Reinsurance being used at Atlas

Their Preferred Reinsurers

Claim recovery related each class of business at Atlas Insurance



OR GANIZATION OF STUDY

The Atlas Insurance Limited (Formerly Muslim Insurance Co.

Ltd) was founded in 1934 by Dr. Sir Mohammad Iqbal and is theoldest insurance company in Pakistan. Atlas Insurance made steady

progress and became one of the leading company in the field of life

insurance in the country. Unfortunately, it came under Government

appointed management from 1961 to 1979. In the mean time, the life

business was nationalized in 1972 and the company lost major

segment of its business. Later in the year 2006, the name of the

company has been changed from Muslim Insurance Company Ltd. to

Atlas Insurance Limited.

Atlas Insurance Limited (AIL) is providing efficient service to its

Clients and also paying good dividends to its shareholders regularly.

The equity of the company has grown from Rs. 1.6m in 1979 to Rs.

970.5 million in 2007. Investments at cost have grown from 3.4m to

over Rs. 920m. In 1996 the company paid one of the largest single

claim in the country of over Rs. 380.0m which speaks of the inherent

strength of the company and the satisfactory re-insurance

arrangements.

The company enjoys full support and backing of the Atlas

Group and has re-insurance arrangements with world

renowned re-insurers like Swiss-R e, Hannover-R e, Tokio

Marine & Nichido Fire Insurance, Sompo Japan Inc.

AIL was also assigned a Financial Performance Rating of 7 on a scale

of 1-9 by the world renowned Credit Rating Agency, A.M. Best

Company of New Jersey,USA.

To provide prompt and efficient service to clients AIL has developed a

branch network all over the country. It has also developed team of

professionals always striving to excel in service.



In line with the Atlas Group philosophy and commitment, Atlas

Insurance is being managed in accordance with good international

practices and entrepreneurial norms and customs as followed by the

reputable international insurers.

Atlas Insurance is a financially sound and a professionally managed

company and has been awarded the "K SE Top 25 Companies

Award 2005", the only insurance company selected for this

prestigious award.

The company was also adjusted as one of the "Top 5 companies" inthe financial sector by a joint committee of the Institute of Chartered

Accountants of Pakistan (ICAP) and the Institute of Cost &

Management Accountants of Pakistan (ICMAP) and was awarded the

"Best Corporate R eport Awards for the year 2003, 2006 &

2007.

The Pakistan Credit Rating Agency (PACRA) an affiliate of Fitch

Ratings Ltd, London, has upgraded Atlas Insurance Financial

Strength (IFS) rating "A+". The rating denotes strong capacity to

meet policyholder and contract obligations, while the risk factors are

moderate, and the impact of adverse and economic factors is expected

to be small.



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