As a part of the vertical layering of risk and sharing of losses, reinsurance is naturally playing an important role in this increasing need for a buffer layer, according to James Drinkwater, president of AmWINS Brokerage.
Placing risk with reinsurers allows primary players to write more business with higher limits because potential losses are shared. So when reinsurance is relatively cheap, it means demand for any buffer layers is greatly diminished as the points between where primary limits end and excess limits begin bump up against each other.
However, Drinkwater notes, with the cost of reinsurance starting to become more expensive, primary insurers have looked to reduce policy limits—restructuring the spread of risk and contributing to the gap between primary and excess layers.
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