Reinsurance for Captive Company

For the captive insurance company, at the development phase, reinsurance decision will taken highest important consideration. the company should need to consider the following things:

1. did company need reinsurance
2. what type of reinsurance required
3. what level of need reinsurance required
4. how to purchase reinsurance]

purchasing reinsurance is very influenced by the risk behaviour of the management whether he is risk averter (front to risk) or risk netral (do not matter about the risk) or risk avoider (do want to face the risk).

to influence the management decision to reinsurance, they must be remind for the function of reinsurance such as:

• stabilisation of the corporate profitability

none insurance could predict claim expected for the following years precisely because claim fluctuation is uncontrollable. by reinsurance mechanism, it will help company to measure maximum claim should be paid by companys' own capital. therefore, bottom line of the balance sheet can be measure more reasonable.

• provide large limit capacity

deciding your risk retention will very influenced by your equity. reinsurance will assist you to retain higher by not exposing your equity too much.

• catastrophe protection

catastrophe protection is the most thing should be considered by underwriter. any catastrophe loss occurred, it will reduce your equity significantly, by reinsurance, it will protect your equity to do not have much exposure and you will able this exposure to your reinsurer.

• factor of high growth of premium income

the underwriter must able to spread their risk and aware for their portfolio and profile such as expanding territory, sell variative product. by expanding the business, it will significantly increase your premium income but underwriter must ensure that they have sufficient protection.

• underwriting process support

underwriter enable to get assistance from reinsurance underwriter (please take a note that most of reinsurance underwriter has good comparison risk assessment per region). this will assist the underwriter assess the risk accurately.

FURTHERMORE, YOUR MANAGEMENT MUST GIVE MORE ATTENTION FOR YOUR REINSURANCE PROGRAM AND MUST ENSURE THAT THEIR PROGRAM WILL RUNS WELL AND ABLE TO INCREASE THE PREMIUM INCOME AND GIVE MORE PROFIT TO THE COMPANY. FURTHERMORE, REINSURANCE MUST EXIST TO INCREASE THE RETURN ON EQUITY AND CREATING COMPANY VALUE.

Regards,

Fakih Wahyudi