CONTRIBUTION OF REINSURANCE BUSINESS TO THE ECONOMY

Purpose: Insurance provides protection against financial aspects of a premature death, injury, and loss of property, loss of earning power, legal liability or other unexpected expenses. However, the industry’s contribution to the economy goes much further. One could point to the millions of people employed in insurance and related activities, to the billions of income taxes and premium taxes paid and to extensive charitable works. But, significant as they are, insurers also need protection against risk. That is why reinsurance has developed in last two centuries. The importance of reinsurance is reflected in the costs insurers are willing to pay to acquire reinsurance protection and the fact that without adequate protection the insurance companies might not be licensed to do business. The purpose of this work is to enhance the reader’s understanding on the various contribution of reinsurance business to the economy. Methodology: A desktop literature review was used for this purpose. Relevant journal articles for the study were identified using search engines such as Google Scholar, Google Books, Semantic Scholar, Science.gov and Research Gate. The studies included in the study were note that were less than ten years old. Findings: From the findings, researchers have shown that without the guarantee of reinsurance, most businesses could not operate as they do today, and construction projects could not go forward. Recommendations: This study recommended that insurance firms should seek for re-insurance as it provides for protection against the potential large accumulations of individual losses that can result from catastrophic events. Insurance firms should also seek for reinsurance as an effort to restrict the loss to their balance sheets, and in that sense, helps them to stay solvent. Other firms should also be insured in firms that have undertaken reinsurance in order to add stability to the   firms   by evening out the results of the insurance companies as they continue to absorb the impact of large losses which would have led to very damaging results to the individual insurance companies. Moreover, insurance firms should consider regional reinsurance so that in case of a national catastrophe, the foreign firms can be in a position to compensate.