|
Different Perspectives
 |
| |
Reinsurers |
Banks |
|
| Capital: |
“Use it or
Lose it” |
“Don’t charge
me for it” |
| Score-Keeping: |
Annual |
Marked-to-Market
nightly |
| Preferred Type
of Risk: |
Low probability
of loss |
Best expected
value |
|
Different Approaches
|
| |
Reinsurers |
Banks |
|
| Basic Strategy: |
“Sell and hold” |
Trade In/Trade Out |
| Preferred Term: |
Annual,
multi-year |
Short |
| Strength: |
Diversification |
Market knowledge |
| Value Added: |
Address unusual
or low-frequency
volatility in a very
economical way |
Quick |
|
How Does Reinsurance Work?
 The idea of any insurance is for the burden to fall on
many shoulders, not a few heads.
But all of the exposures in a physical zone are exposed
by the same potential physical events. There is no
diversification.
Reinsurers look to diversify across all of the zones.
They earn their cost of capital in prices along the way:
Turn that around …
Premiums are a function of:
- Expected losses
- Limit exposed
- Reinsurers’ ROE target
- Number of zones reinsurer can diversify across
Exposure Zones
Diversification Across Products Helps:
Property against catastrophes
Large individual properties protect against other risks
Large individual liability policies
Other liability risks
Workers’ Compensation medical costs
Surety and Financial Guarantees
Marine and Off-shore Energy
Aviation and Space
WEATHER!!
|
Previous