REINSURANCE BY SHORT-TERM REINSURERS IN SOUTH AFRICA

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Abstract

The short-term reinsurance process usually involves three parties, namely the insurer, the reinsurer and the original policyholder, as the insurer cedes a part of the covered risk of the policyholder to the reinsurer. This research however addresses the perceptions of reinsurers regarding their reinsurance activities, where the reinsurer sells reinsurance to other insurance entities (viz. insurers and reinsurers), as well as buys reinsurance from other insurance entities. The crux of short-term reinsurance is therefore mutually loss sharing between the various insurance entities. The objective of this research focuses on the improvement of financial decision-making regarding the reinsurance operations of the reinsurers. To achieve this objective a literature study was undertaken to provide adequate background to compile a questionnaire for the empirical survey. The primary study embodies the perceptions of the South African short-term reinsurers regarding the following aspects: the various reasons why reinsurance occurs; the contracts / methods of reinsurance; the bases / forms of reinsurance; and the factors which determine the retention levels of a reinsurer. South Africa is classified as a developing economy, is a member of the BRICS countries and has an emerging market economy. The empirical results should therefore also be valuable to other countries which are classified similarly.

Keywords: Bases / Forms of Reinsurance, Contracts / Methods of Reinsurance, Need for and Uses of Reinsurance, Non-proportional Reinsurance, Proportional Reinsurance, Retention Level of Short-term Reinsurers

How to cite this paper: Fernhout, C., Mostert, F., & Mostert, J. (2016). Reinsurance by short-term reinsurers in South Africa. Risk governance & control: financial markets & institutions, 6(1), 35-42. https://doi.org/10.22495/rgcv6i1art4