Determining appropriate reinsurance

Question 1

• The main factors determining an insurer’s use of reinsurance are (15)

Answer 1

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