Reinsurance

Reinsurance transactions come in many shapes, sizes, and types. The possible

terms of reinsurance deals are limited only by the imagination of the participants.

However, at some point, third parties are going to be involved. Regulators, auditors,

rating agencies, tax authorities, and others quickly develop a keen interest in

reinsurance deals because they often have a material impact on the work these third

parties do. Thus, while creative reinsurance deals can achieve many useful objectives,

they must be understandable to a wide variety of interested parties in order to be

effective.

The most critical aspect of a reinsurance deal is the passing of risk from the

ceding company to the assuming company. If material risk is not passed through the

transaction, then it is not likely to achieve any of its objectives. Ceding companies are

quite happy to pass risk to assuming companies to get rid of it. However, assuming

companies are generally very careful about the risks they assume and the

compensation they receive for taking that risk.

Sometimes the best way to demonstrate

the passing of risk is through proforma financial statements under optimistic and

pessimistic experience scenarios. If these scenarios accurately show varying results

among the parties then the risk being passed through the deal can generally seen by all

interested parties.



Reinsurance is a critical tool in the insurance industry. Hardy any companies

always have the right mix of people resources and money. If a company has relatively

more people resources, they logically become a net ceding company. If a company has

relatively more money, they logically become a net assuming company. Managing

reinsurance arrangements to achieve the optimal mix is not easy. I would love to help

you with the challenge.