CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Insurance is a provision of a system of compensation for loss, damage, sickness, death and other unbearable circumstances in return for regular payment of a pre-determined premium (Ekanem, 2011). Insurance companies are important for both businesses and individuals as they indemnify the losses and put them in the same positions as they were before the occurrence of the loss. Insurers also provide economic and social benefits in the society i.e. prevention of losses, reduction in anxiety fear and increasing employment (Omoke, 2012).

Because of the nature of risks assured by insurance companies, they further transfer them to another third party known as reinsurer. This process is known as reinsurance. Reinsurance however, is a contractual arrangement under which an insurer secures coverage from a reinsurer for a potential loss to which it is exposed under insurance policies issued to original insured (Uche and Chikeleze, 2001) .

The risk indemnified against is the risk that the insurer will have to pay on the underlying insured risk. Because reinsurance is a contract of indemnity, absent specific cash-call provisions, the reinsurer is not required to pay under the contract until after the original insurer has paid a loss to its original insured (Raim and Langford, 2007).

Reinsurance enhances the fundamental financial risk-spreading function of insurance and serves at least four basic functions for the direct insurance company: increasing the capacity to write insurance (under prevailing insurance-regulatory law); stabilizing financial results in the same manner that insurance protects any other purchaser against spikes from realized financial losses; protecting against catastrophic losses; and financing growth (Raim and Langford, 2007).

1. 1. This material content is developed to serve as a GUIDE for students to conduct academic research work
2. 2. As a source for additional understanding of the subject.
3. 3. As a source for ideas for your own research work (if properly referenced).
4. 4. For PROPER paraphrasing (see your university definition of plagiarism and acceptable paraphrase)
5. 5. Direct citing (if referenced properly)
Thank you so much for your respect to the authors copyright.