Reinsurance Exposure Put UnderSpotlight
Among the many risks faced by insurance companies today,reinsurance exposure is one that has gained an increasing profileas the soft market unraveled.
With reinsurance leverage reaching a peak, the quality ofreinsurance counterparties declining and over-reliance onreinsurance becoming evident in a number of recent failures, thisrisk exposure is attracting increased attention in today'soperating environment.
During the last soft market for commercial insurance, primaryinsurers' reinsurance exposure–and hence their associated operatingleverage–grew in response to a number of factors. In some lines ofbusiness, primary insurers had, for several years, increased thesize of gross coverage limits they offered in an effort to growtheir top lines without further eroding already weak premium ratesand coverage terms. Excess reinsurance was used to manage down thenet risk associated with these higher exposed limits.
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