Reinsurance Explained: Air India Crash Payout
Why in the news
A $125 million payout reached Air India for hull and engine loss in the Ahmedabad air crash, shared by global reinsurers and Indian insurers.
What is reinsurance
- Cover for insurers: the cedant gives a share of risk to a reinsurer and pays a reinsurance premium.
- Purpose: protect against catastrophic losses, support solvency, raise underwriting capacity.
- Flow: policyholder, cedant, reinsurer.
Types and methods
| Category | Meaning |
|---|---|
| Facultative | Case by case; for high-value or unusual risks, e.g. one aircraft |
| Treaty | Automatic cover for a class of risks, long-term |
| Proportional | Risk and premium shared by ratio: quota share, surplus |
| Non-proportional | Pays only above a threshold; excess of loss is the type pointed out here |
Link to the crash
- Hull and engine loss sits under aviation insurance.
- Payout came mainly from reinsurers; Indian insurers were cedants.
- Passenger liability is separate liability insurance.
Key terms
- Retrocession: a reinsurer reinsuring its own risk.
- Retention: risk kept by the insurer.
- Capacity: maximum risk an insurer can underwrite.
- Solvency margin: buffer required by IRDAI.
IRDAI points
- GIC Re: government-owned national reinsurer.
- Mandatory cession: Indian insurers cede a fixed share to GIC Re, retaining risk at home.
- Governed by IRDAI (Re-insurance) Regulations.
Exam angle
- Cedant versus reinsurer.
- National reinsurer: GIC Re.