10 POLICY Special edition 2023 The reinsurance became a key player in the production and results of the general insurances. It seems that we are in the midst of a period in which the reinsurers examine the outcomes of the recent years, while aiming to change the rules and policies as part of a strategic plan of improving their situation, mainly in the fields of activity that are unstable with respect to their profitability, including the comprehensive motor insurance and part of the liability insurances. The main reason why the domestic companies use reinsurers is to protect their equity and obtain a defense while cooperating with reinsurers in the risk and premium. The defense that the companies obtain allows them: a) to increase their business in excess of the scope their equity allows them to; b) to receive a defense against a catastrophic damage -meaning an extremely large event in its scope (like a fire, earthquake, nature disaster and etc.) or against a complex of damages in a certain field that can endanger the company’s capital; c) to spread the risk while deciding on a maximum sum of damage for a single coverage in order to stabilize the underwriting system (and the profitability). In addition, in certain cases the reinsurer allows a domestic insurer to learn about a certain risk the company is inexperienced with or doesn’t have the knowledge as to how to set its price or treat the claims in such matter, and therefore they are helped by the knowledge of a reinsurer. About 34.6% of the production in the general insurances transferred in 2022 to the reinsurers (9.205 billion NIS out of 26.637 billion NIS-34.6%) and an equivalent percentage out of this transferred production was with respect to pending claims (6.36 billion NIS out of 19.1 billion NIS - 33.3%). The reinsurers and domestic insurers have a contractual relationship for sharing in the premium and risk (and in the payment of the claims). The two main contracts in such a relationship are: A proportional insurance – in such a case the reinsurer proportionally participates in the premium and claims- this is a full partnership in all the (big and small) damages (according to the participation percentages). In cases in which the underwriting is problematic/ the claim ratio is bad (as was described in the recent years in a few fields of activity), the reinsurer absorbs the payment of the commission to the domestic insurers in addition to his share in the claims. An unproportional insurance- this insurance deals with an excess of loss in which the reinsurer is responsible for a damage that is usually extremely large, which remains after the insurer’s deductible was used. In this kind of contract, it is uncustomary to pay a certain commission to the reinsurer. Since most of the small and mediumsized damages fall on the domestic insurer, the profit or loss of the reinsurer are measured in the number of large damages that exceeded the participation of the domestic insurer, and hence, in the case of a bad underwriting the domestic insurer will be the first one to suffer the blow. Most of our report in the matter of the reinsurers’ production and outcomes is related to the aforesaid contractual relationship. However, there are also facultative insurances for a specific risk or a number of specific risks, which are usually very big. In such cases most of the coverage at the reinsurers and Israeli insurer mainly deal with the service and brokerage. Sometimes an extremely large damage distorts the general outcome that is related to contractual agreements (as it happened in 2021 to Clal in the matter of the liability insurance). The Results of 2022 In 2022 9.2 billion NIS out of 26.6 billion NIS, which constitutes 34.6% of the gross production was transferred to the reinsurers (in 2021 the outcome • 35% of the production in the general insurances transferred in 2022 to the reinsurers, which is a modest reduction of less than 2% in the participation rate but a nominal increase of 633 million NIS in the production that was transferred • As a result, the reinsurers went from a loss to a profit of 1.1 billion NIS • the considerable increase in the reinsurers’ production in the fields of property and other insurances brought a significant increase in the profit, because 70% of it was transferred to the reinsurers • a summary of the reinsurances in 2022 2022 Elementary Sector Result Analysis The Reinsurers’ Results in the Compulsory Motor Insurance and Liability Insurance have considerably improved in 2022 compared to 2021 and at the same time there was an Aggravation in the Comprehensive Motor Insurance By Hagai Shapira
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