Access To Reinsurance By Smaller Insurers: Perils, Pitfalls and Solutions
Research Project by Society of Actuaries
The purpose of this research project was to identify challenges encountered by smaller insurers in obtaining lifereinsurance, learn about challenges and opportunities life reinsurers face in servicing these companies, and consider some possible solutions that might help to resolve the challenges encountered. The knowledge from this research is intended to assist actuaries, smaller insurers, reinsurers and others in optimizing their
respective success in future reinsurance endeavors with smaller insurers.
Some of the issues investigated were:
o The use of benchmarks by reinsurers to determine the size of companies they are willing to do business with,
o Reinsurance treaties and services available above and below those benchmarks,
o The reasons smaller insurers need reinsurance,
o Challenges experienced by smaller insurers when trying to secure reinsurance, and
o The ways in which the challenges were (or were not) overcome.
To gather information, a two survey approach was used – one to reinsurers and brokers, and one to smaller insurers. Follow-up interviews were used to clarify responses and dig deeper into the challenges and discuss possible solutions.
Of the smaller insurers that responded to the survey, about one-half reported that they have had challenges with the reinsurance process. These insurers are referred to as the “challenges group”. However, as tables 5 and 7 will show, the challenges group reinsured more of their business in 2007-2009 than the no-challenges group, and the total ceded amounts inforce for the two groups are about the same. This suggests that even though there have been challenges, they were apparently not insurmountable for the companies that responded to the survey.
We encourage readers to look at the entire report and form their own conclusions, but the conclusions and suggestions from the researcher are as follows:
1. There is a reinsurance market for smaller insurers. If you are experiencing challenges, you are encouraged to keep trying. Most of the smaller insurers participating in the survey found ways to deal with the challenges they
experienced.
2. For those companies that are new to the reinsurance world, or if you have had challenges in the past, there is a list of suggested steps you might want to consider taking the next time you approach the reinsurance market with a new product. Those suggestions are documented in Appendix 1.
3. A special smaller insurer pool might also be a solution, and a suggested framework for the pool approach is discussed in the Summary and Solutions section.
© 2011 Society of Actuaries, Schaumburg, Illinois. Posted with permission.
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