Reinsurance Exposure Put Under Spotlight
Among the many risks faced by insurance companies today, reinsurance exposure is one that has gained an increasing profile as the soft market unraveled.
With reinsurance leverage reaching a peak, the quality of reinsurance counterparties declining and over-reliance on reinsurance becoming evident in a number of recent failures, this risk exposure is attracting increased attention in today's operating environment.
During the last soft market for commercial insurance, primary insurers' reinsurance exposure–and hence their associated operating leverage–grew in response to a number of factors. In some lines of business, primary insurers had, for several years, increased the size of gross coverage limits they offered in an effort to grow their top lines without further eroding already weak premium rates and coverage terms. Excess reinsurance was used to manage down the net risk associated with these higher exposed limits.
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