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What is Reinsurance For, Anyway ?
 Balance Sheet Integrity - Surplus Protection
Provide Liquidity
Protect Earnings
Perceptions of Regulators, Rating Agencies, Customers, Others
Traditional Coverage
Treated as ordinary income for taxes, etc.
Well understood by clients, rating agencies, regulators
But,
Can be expensive when measured by reduction in revenue, loss of cashflow and profit ceded
Can be hard to find in acceptable amounts and forms with good security
Derivatives
Financial instruments that derive their values from those of other assets. Especially futures, options, and swaps.
Market Fundamentals: Demand
New capital to reinsurers
- More than $4 Billion invested into Bermuda reinsurance facilities
- More in London market corporate vehicles
- Numerous IPOs completed
Are any eager, sophisticated investors "locked" out of the game?
Market Activity (In late 1996)
Three known big deals
- $100 Million Citibank "synthetic reinsurance" for Hannover Rück
- $400 Million Nationwide contingent surplus notes
- $100 Million Arkwright contingent surplus notes
CEA
- If it survives judicial challenges
- And, if the dogs want to eat the dogfood (e.g., HPR, Cat Limited)
"Million Dollar" trades on CBOT
CATEX
CBOT
1995 total capacity was almost $19 Million in limits
1996 was running at about twice that level through July
Many "Million Dollar" deals
$6.6 Million traded on Sept.5, during Hurricane Fran
$50 Million bid
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