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Local, foreign re-insurers go for facultative this year

LOCAL insurance companies are in for a shocker this 2010 as reinsurers appear set for closer scrutiny of risks placed by them in the wake of rising claims and under-pricing of risks as local and foreign reinsures have resolved to do more of facultative reinsurance this New Year.

Facultative reinsurance is negotiated separately for each insurance contract that is to be reinsured. The flexibility of facultative reinsurance allows many ceding insurers to reinsure hazardous risks not covered by ongoing treaty arrangements, thereby reducing the insurer’s liability in certain high-risk areas.

Facultative reinsurance also allows the primary insurers to obtain the re-insurer’s advice on doubtful risks and review risks rate.

Mr. Adeyemo Adejumo, Managing director of Continental Reinsurance Plc said that there had been an improvement in placement of treaty by the Nigerian insurance companies.

Adejumo remarked that insurance companies’ chief executives have taken their treaty seriously in order not to endanger their companies’ interests and exposures.

He said that the use of reinsurance undoubtedly has an indirect or a secondary effect on the solvency of primary insurers.

“Without reinsurance, many primary insurers may not write or may reduce the number or size of highly risky policies.” In other words, the availability of reinsurance encourages primary insurers to engage in highly risky business in turn, raise their insolvency risk”

Mr. Bakary Kamara, Managing Director of Africa Reinsurance Corporation, said that the global financial crisis triggered increase in the demand for reinsurance services but advised underwriting companies to firm up their rates in order to survive in the difficult business environment.


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