What Is the Business Model of a Reinsurance Company? - Ini Adalah Bellarina Natasya | Bella Jamal What Is the Business Model of a Reinsurance Company?


What Is the Business Model of a Reinsurance Company?

What Is the Business Model of a Reinsurance Company? | There's an opportunity in every crisis. In the insurance and reinsurance industry, natural catastrophes and unexpected disasters regularly highlight the gap between insured losses and the much higher level of economic loss. The existence of Malaysia’s insurance companies and the reinsurance industry is to close this gap — with the aim of delivering economic benefits to our clients and making businesses more resilient.

Malaysia’s reinsurance companies
Image source: Technode Global

The Foundation of The Industry

Reinsurance is the practice whereby insurers transfer portions of their risk portfolios as stated in an agreement to other parties in the secondary insurance market. It is done through a legal contract to reduce insurers' risk of paying large obligations that arise from insurance claims. This process is presented as a legal transaction between two parties, namely the ceding party and the reinsurer — the former diversifies its insurance portfolio while the latter undertakes risks in exchange for insurance premiums.


Basics of the Business Model

Reinsurance companies typically offer two products that cover varying risks depending on the company's financial needs. The first is facultative reinsurance, designed to cover single or defined packages of risks in the primary insurer's business. Facultative reinsurance is usually taken by the ceding company as a supplement to a long-term reinsurance contract to diversify increasing costs and mitigate financial risk. 


The second is treaty reinsurance, a broad agreement covering some portion of a particular class of business or a set of risks. Compared to facultative reinsurance, treaty reinsurance provides coverage for all risks within the terms unless specifically excluded. It does not require the insurer to review individual risks, but it demands a careful review of the underwriting practices of the ceding company.


The Customers of the Reinsurance Industry

Reinsurance companies target a very different customer base than conventional insurance companies and tend to operate under wider jurisdictions involving other legal systems. Conventional insurance companies are mainly targeted at individuals and small-scale companies, while reinsurance companies operate in the background of the financial world as it involves a huge number of financial risks and operational expenses. A reinsurance company must have underwriting, actuarial, and claims expertise to provide various services to provide coverage for large-scale industries. Some common reinsurance products are life reinsurance, agriculture reinsurance, automobile reinsurance, and property reinsurance. Given its niche and large-scale business nature, these reinsurance companies usually develop strong business ties with specific industries.


As a resilient developing economy, Malaysia also has a reinsurance industry. Malaysian Reinsurance Berhad (Malaysian Re) is Malaysia's largest reinsurer, commanding more than 60% of reinsurance accepted premiums in the country. Malaysian Re underwrites all classes of general reinsurance business and general re-takaful business. Malaysian Re is a regional and international player with an extensive portfolio of business expertise and a strong market presence in Asia and the Middle East. Head over to https://www.malaysian-re.com.my/our-solutions/reinsurance for an overview of the company’s business model.

Bella Jamal

Hi! Bella Jamal is a part-time blog writer of Ini Adalah Bellarina Natasya. A long time ago graduated from the National University of Malaysia with a degree in Bachelor of Chemistry, now working as a Social Media Professional for Telco company. For any opportunities, can contact me at jbella8868@gmail.com

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