An insurance policy seeks to eliminate potential risks that may harm individuals’ or companies’ tangible assets in exchange for an insurance premium. Thus, individuals and businesses share the burden of liabilities that they could not afford on their own and may better manage related risks.
Insurance carriers must contend with the danger of many risks co-occurring on a large scale. Reinsurance may help manage such risks.
Based on the classification in Turkish Commercial Code no. 6102, there are two types of insurance: excess loss insurance and property insurance. Entities can seek insurance to protect their property, commodities, and physical bodies (life insurance) from potential damage.
1. Practice of Reinsurance in the Insurance Industry
Reinsurance is transferring some of an insurer’s risk portfolio to a reinsurer in exchange for a commission payment. In other words, the insurer sells a portion of its obligations to another insurer that serves as a reinsurer. The parties to a reinsurance policy are the reinsurer, which provides reinsurance, and the insurer, known as the ceding party.
Reinsurance requires advanced knowledge, expertise, financial transparency, and power. Indeed, every insurance company cannot act as a reinsurer. Reinsurance assumes a critical role in the insurance industry by distributing the burden of corporate and commercial risks and facilitating an environment of trust.
In a similar vein to traditional insurance, insurers transfer a portion of their risk portfolios to reinsurers in exchange for a premium payment. If a covered risk materializes, the reinsurer incurs the damages, and the insurer receives payment. Likewise, reinsurers use the retrocession method to transfer and distribute some of their liabilities to other reinsurers. Therefore, reinsurers play a vital role in the insurance industry by assuring the distribution of risks.
2. Reinsurers in Türkiye
Under article 3 in Insurance Law no. 5684, “Insurers or reinsurers based in Türkiye shall be established as joint stock companies or cooperatives. Insurers or reinsurers shall be involved solely in insurance transactions. Associated proceedings.” The legislation obligates reinsurers to obtain a license from the Ministry of Treasury and Finance to be able to serve. After obtaining the license, reinsurers must register to “the Association of Insurance, Reinsurance and Pension Companies of Türkiye” (“TSB”).
Current reinsurers registered to TSB are as follows:
- Artı Re
- Milli Reasürans
- Türk Katılım Reasürans
- Türk Reasürans
- VHV Reasürans
Among those companies, Milli Reasürans has been active since 1929. The number of companies established to serve in this area is increasing daily, which will undoubtedly increase the assurance of the industry’s preservation.
Organizations serving in the insurance industry assist individuals and entities in managing risks and potential damages they cannot afford on their own and contribute to developing a trusting environment. Thanks to this atmosphere of trust, people and businesses are more secure in their ability to make investments and prepare for the future. Therefore, it is essential from an individual and professional aspect that insurance companies efficiently distribute their current risks and that reinsurance businesses continue to serve in the market.
Sources:
- Turkish Commercial Code no. 6102
- Insurance Law no. 5684
- Türkiye Sigortacılık Tarihinde Kamusal Bir Pranga: Reasürans Tekelinin Eleştirel Analizi, Ebubekir Ayan, 10.01.2020, Dergipark
- Website owned by the Association of Insurance, Reinsurance and Pension Companies of Türkiye
