Monday, January 3, 2011

Appendix Nine Reinsurance through ICMIF

Case study 10: Co-operators General Insurance Company - Barbados

The Barbados credit union league after administering a Mutual Benefit Plan to its members for a number of years, formalised its insurance operations in 1993. ICMIF has been assisting the League to set up insurance services since 1984, providing consultancy and capital-raising support. Once registered Co-operators General faced three major problems that were resolved by ICMIF reinsurance through its members. In the first year of operations, due to over estimation of premiums, the cost of catastrophe cover on the open market for fire, household and motor policies was higher than actual premiums written. ICMIF reinsurer provided a 90% quota share agreement , which reduced the exposure of the company to one-tenth. Second, the nature of unlimited liability under local motor policy regulation meant that the best unlimited excess of loss cover available on the open market required a retention of 300,000 BBD on each claim, which the company could not afford. ICMIF reinsurer provided an excess of loss cover up to the 300,000 BBD with a retention requirement of only 40,000. Between 1994 and 1998 this protected the company from 884,000 BBD in claims (almost half million US dollars), enabled it to write more policies, gain more underwriting experience, pay claims quickly, maintain solvency and invest reserves. Thirdly in 1998, the company was experiencing an increasing number of small claims (below 40,000) due to the rapidly expanding motor business. Consequently, the excess of loss was converted to a 50% Quota share agreement up to 300,000 BBD and placed with ICMIF members. This protected the company from claims of five and half million BBD between 1998 and 2001 (over two and a half million USD) and maintained its capacity to grow.

Case study 11: Co-op Seguros Dominican Republic

Since its registration in 1989, apart from 30% being placed locally for the first few years, ICMIF has provided the reinsurance cover for all products (non-life and life) written by Co-op Seguros. During the 1990s the company experienced financial difficulties and coupled with foreign exchange restrictions fell behind in its payment of reinsurance premiums. Normally reinsurance cover would be withdrawn but on persuasion ICMIF members continued its agreement to cover Co-op Seguros. In the late 1990s as the company’s performance improved a suitable repayment plan was agreed and implemented. This proved timely as in 1998 Hurricane George resulted in seven claims of 322 thousand US dollars, ICMIF reinsurers agreed to pay the claims without deduction of outstanding premiums. As well as paying its policyholders quickly and fully, this enabled the company to remain solvent and show a pre-tax surplus of 41 thousand instead of a loss of 140 thousand US dollars in 1998.

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