Insurance companies are taking risks. They have to pay claims as and when they occur. They cannot be sure when the claim will occur and how big the claim will be. This is so because of the very nature of perils. Insurers normally financially sound enough to be able pay claims. But there are limits. An event like the tsunami and hurricane may generate claims amounting of billions of dollars, which may put a very heavy strain on the reserves of the insurers. Insurers protect themselves from such situations, which may be beyond their capacity, by re insuring the risk with other insurers. If there is a claim the burden is shared by the primary insurer and other re insurers.
There are some companies which are exclusively in the business of re insurance. Re insurance business is placed globally. When there is majority calamity, the claims affect several insurers all over the world, through the system of re insurance.
RE INSURANCE
Insurance companies are taking risks. They have to pay claims as and when they occur. They cannot be sure when the claim will occur and how big the claim will be. This is so because of the very nature of perils. Insurers normally financially sound enough to be able pay claims. But there are limits. An event like the tsunami and hurricane may generate claims amounting of billions of dollars, which may put a very heavy strain on the reserves of the insurers. Insurers protect themselves from such situations, which may be beyond their capacity, by re insuring the risk with other insurers. If there is a claim the burden is shared by the primary insurer and other re insurers.
There are some companies which are exclusively in the business of re insurance. Re insurance business is placed globally. When there is majority calamity, the claims affect several insurers all over the world, through the system of re insurance.