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Strategies & Market Trends : Value Investing
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To: Jurgis Bekepuris who wrote (44320)9/14/2011 5:42:07 PM
From: Shane M2 Recommendations  Read Replies (1) of 78601
 
catastrophe exposure / risk of ruin (more trouble in property than in auto) - yes. Potentially this is a bigger issue for reinsurers. Question though: do you think that insurers don't reinsure enough?

Actually I think reinsurers are in a better position to control risk of ruin than insurers. Most reinsurance deals that I've seen place limitations on how much the reinsurer will pay - but there's no way for an insurer to put a maximum cap on losses. For example: Reinsurance deals I've seen might be where reinsurance kicks in for a single hurricane after the first 2 Billion in losses, and the reinsurer might cover losses from 2B to 5B, but then the reinsurance is used up, and the initial company is back on the risk for any and all loss beyond $5B. There is no way to reinsure your way out of risk of ruin. So I guess in many ways being a reinsurer is "preferred" in my mind in the property area as maximum losses are known.

I think insurers utilize reinsurance where they can - but the extraction costs are high. When you need reinsurance (often after a significant capital draining event) reinsurance rates often shoot through the roof. Reinsurance might not be the best way to approach some of the risk management issues out there - I've heard of CAT Bonds being floated as alternatives but don't know how that is going.
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