Reinsurance security

Document description

Reinsurance is often the second biggest cost of an insurance company, after claims. The management of this cost is certainly important. What is surprising to find in an insurance company is the lack of attention paid to this cost, both at the strategic and the management level. The reinsurance cost is often an add-in to the business plan, and not necessarily a fundamental part of it. The extent of any reinsurance purchased is often on the basis of the previous years' purchase, with little thought on the value of alternatives, or even whether the programme meets the needs of the insurer in the most efficient way. It is also often placed with reinsurers of various quality, who have run the risk for many years and whose fortunes themselves may have changed radically in a short space of time. Furthermore, it has been known for insurers to purchase reinsurance that was unlikely ever to be used, (such as when the deductible is above the gross exposure to any loss) due to incompetence or to reduce investors' naive concerns.