Financial reinsurance

Document description

Natural catastrophes and prior year claims development have had a profound effect recently on market results within the UK. Alternative solutions have been sought to conventional reinsurance, with "time and distance" policies being the first instance of financial reinsurance. Such policies in effect discount claims reserves for past years and discount at a gross rate by being sited offshore. As reinsurance costs escalated and capacity became limited, financial reinsurance developed into prospective covers, with an insured paying for its own losses over time. Concern was expressed by various interested parties as to whether such contracts contained sufficient elements of risk to be classified as reinsurance. The debate continues as accounting, taxation and regulatory bodies discuss the validity and presentation of such contracts within the UK. Financial reinsurance is still evolving.