Summary
While finite reinsurance products are estimated to make up less than 10% of the total reinsurance market, they currently are at the core of some major changes within the insurance industry. While this continues to be an evolving story, what is painfully obvious at this point is that the insurance industry has once again managed to sabotage its own credibility, leaving insurance buyers looking for the exit doors. In order to fully appreciate finite reinsurance products, it is necessary to understand several basic concepts associated with all insurance products. The first core concept is that the insurer transfers specific liabilities that are unexpected and unintended events that take place in the future, to a reinsurer. This type of transaction is typically referred to as insurance for insurance companies. And as with any normal insurance transaction, the reinsurer bears a risk far greater than the insurance company's premium for transferring the risk. Most of the contracts are written for one year and offer the insurer a method to transfer a portion of its risk portfolio on a cost-effective basis.
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Extract
Oh, What a Tangled Web We Weave
A.M. Best recently provided the insurance industry some welcome news-the property/casualty insurance industry's financial results have improved for the second year in a row. Best estimated that the surplus grew at an outstanding 13.7% in 2004, while the combined ratio of 97.8 represented the first time since 1978 that the industry posted an underwriting profit. This would normally be cause for celebration within the industry, an opportunity to "pop some corks" and toast to our industry's good fortune. But that headline didn't even make the front page of The Wall Street Journal.
The strong results wer...See the full content of this document
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