Chapter 7: Determining appropriate reinsurance

Question 1

Main factors determining an insurer’s use of reinsurance are:

Answer 1

• The classes of business written, the size and range of risks and their volatility
• The size of the insurer’s free reserves
• The extent to which accumulations of risk are possible
• The size (total premiums) and diversification of the insurer’s portfolio
• The general cost, value for money and availability of reinsurance
• Alternatives including coinsurance and protection afforded by parent company
• The financial strength of reinsurers
• Regulatory requirements and fiscal system
• The impact of capital management
• The need for technical assistance
• Risk appetite and tolerance
• Underwriter’s influences
• Financial objectives
• The reinsurer’s requirement for minimum retention
• Relationship with reinsurers and brokers