Considerations in evaluating reinsurance security

Document description

In world markets, very great sums are expended on the purchase of reinsurance protections which, like many general insurance contracts, promise the reimbursement of certain future payments if they are incurred. The ceding company obviously needs to have some confidence that the reinsurer will be in a position to meet this obligation, or the cedant would be advised to retain the business for his own account - at least he would then be in the position of having some additional premium to assist in meeting the additional retained liability. Otherwise, in the event of the failure of the reinsurer, the liability will revert to the cedant although the reinsurance premium has already been paid away. As a consequence of such thoughts, quite an industry has developed in monitoring reinsurance security, which has recently been a very hot topic, given the vast number of reinsurers participating in the market, often at cut-throat rates.