ASSUMPTION REINSURANCE Meaning and
Definition
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Assumption reinsurance is a term used in the insurance industry to describe a type of reinsurance transaction in which one insurance company (the assuming company) assumes the policies and associated liabilities of another insurance company (the ceding company). This process involves the transfer of the insurance policies, and subsequently, the responsibility for paying any claims associated with those policies, from the ceding company to the assuming company.
The assumption reinsurance transaction typically occurs when the ceding company wants to reduce its exposure to a specific line of business or reduce its overall risk profile. By entering into an assumption reinsurance agreement, the ceding company transfers the obligations of its policies, along with the premiums and reserves associated with those policies, to the assuming company. In return, the assuming company assumes the financial responsibility for any claims that arise from those policies.
Assumption reinsurance can be beneficial for both parties involved. The ceding company can offload the risks associated with the policies it no longer wants to manage and potentially free up resources to focus on other lines of business. The assuming company, on the other hand, can acquire new policyholders and expand its business without taking on the same level of underwriting risk that comes with issuing new policies.
Overall, assumption reinsurance allows insurance companies to selectively transfer their policy obligations in order to manage risk, optimize their business portfolios, and potentially improve their financial position.
Etymology of ASSUMPTION REINSURANCE
The etymology of the phrase "assumption reinsurance" can be broken down as follows:
1. Assumption: The word "assumption" comes from the Latin word "assumptio", which means the act of taking or receiving. In English, it refers to the act of taking on a responsibility, duty, or debt from someone else.
2. Reinsurance: The word "reinsurance" is a combination of "re-" (meaning again) and "insurance". Insurance, in turn, derives from the medieval Latin word "assurantia", which means security or assurance.
Therefore, "assumption reinsurance" refers to the act of taking on or accepting another party's insurance liabilities or policies. It generally occurs when an insurer transfers some or all of their risks to another insurance company known as the reinsurer.
