Insurance Risk Securilization

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Insurance is defined as a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against that risk. Risk is uncertainty of financial loss. Every risk involves the loss of one or other kind.


The insured part of the contract is to promise to pay an amount of money, known as the premium, either once or regular intervals."
"Insurance is a device to share the financial losses which might befall on an individual or his family on the happening of special event" (Kaur n.d. p.4). The event can be death of a bread-winner to the family in the case of life insurance, marine-perils in marine insurance, fire in fire insurance and other certain events in general insurance, e.g, theft in burglary insurance, accident in motor insurance, etc. These events may occur any time within the insured period. The insurer has to provide a fixed amount or indemnify the amount of occurred due to the insured perils. Hence, insurers bear a great risk of paying huge amount of fund at any time if the insured peril is occurred. As large as the insured amount and the probability of happening insured peril, the Insurance Risk for insurers is large.
Reinsurance is an arrangement whereby an original insurer who has insured a risk insures a part of that risk again with another insurer, that is to say, reinsures a part of the risk in order to diminish his own liability. ...
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