Chapter 9 - Reinsurance Market Flashcards
In what fundamental way do insurance and reinsurance markets differ from most
other types of market?
Most other markets involve the buying and selling of tangible goods that can be
inspected and appraised. For insurance and reinsurance-related products this is not
the case, since what is being traded is a promise to pay in the event a specified
occurrence taking place.
What are the requirements for an international reinsurance market?
- Political Stability
- Geographical location
- Quality transport system
- Developed communication systems
- Highly qualified personnel
- Office space at competitive prices
- Multi lingual
- Stable legal and regulatory enviornment
- Liberal attitude by authorities
- Quality family life
- Time Zone
- Foreign presence
- Strong national insurance industry
- Centralisation
- Tight economic controls
- Strong currency
- Arbitration facilities
What are some examples of extraneous factors which affect the purchase of reinsurance?
- Price of cover
- Availability of capacity
- Strength of competition
- Developments in loss exposures
- Potential claims
- New products
- Financial markets
- Coverage
Following major market losses such as 9/11, Hurricane Katrina and Hurricane Ike,
what are the likely effects on reinsurers?
a. Reserves.
b. Return on capital.
c. Terms and conditions of coverage.
d. EML calculations.
a. Reserves have to be greatly enhanced in order to fund losses, leading to a
reduction of capacity and poorer underwriting results;
b. return on capital becomes less as poor investment returns and low interest rates
mean that investment income can no longer keep up with technical underwriting
deficits;
c. the tendency to increase the scope of cover is reversed as tighter controls and
more restrictive wordings are imposed;
d. EML calculations are re-evaluated as the sheer size of such losses means that
reinsurers have to reconsider on what basis they can accept large risks.
What are the two advantages of using the London market?
- Substantial capital backing
- Access to a wider range of business
