Difference Between Assumed and Direct Business

N89N89
in CCIR.ARinstr

Hello, can you please explain the difference between Assumed and Direct Business with an example for both a primary insurer and a reinsurer?

Comments

  • chrisboersmachrisboersma

    I believe this content is covered under Online Course 1.

    Assumed Premiums: Premiums received or receivable for coverage provided under a reinsurance agreement.

    Ceded Premiums: Premiums paid or payable by the captive to another insurer for reinsurance protection.

    Direct Premiums: The gross premium income for coverage under policies issued by the captive.

    The only difference between Direct and Assumed is WHO is paying the premiums. When premium is coming to company ABC via a re-insurance agreement as revenue (whether that insurer is a re-insurer or otherwise) it is "Assumed" from ABC's perspective. When the company issues a policy directly to a customer (corporate or individual) it is a direct premiums.

    A re-insurance company
    A pure re-insurer would not issue any policies to customers and would have direct premiums = 0 (all premiums come from insurance companies ==> assumed). They may also need to buy re-insurance for their own potential for CAT/Large losses or may share (quota share) losses with another insurer (ceded)

    equations
    Gross = Direct + Assumed (sum of all revenue)
    Ceded = Cost of Reinsurance to support Gross Premiums

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