May 24, 2018 11:30
Photo : Freepik
The consolidation movement among insurers of persons in the United States affects the destination of the risks transferred in reinsurance, reveals a survey of the firm’s rating A.M. Best. Although the majority of the risks transferred are sent to reinsurers ‘ allowed, nearly half of the risks (48.9 per cent) are found with reinsurers, captives, or affiliates of the primary insurer.
However, this was the first time since 2009 that the rate of risks ceded to reinsurers affiliated was under the bar of 50 %. A.M. Best evaluates to 23 % the proportion of reinsurers in which the entity is affiliated to a primary insurer.
«The reinsurance companies, captives allow insurers to use their capital more effectively, providing better aggregation and management of certain insurance risks where the reinsurance from reinsurers third party is not available, explain the authors of the report. The segregation of risks with a reinsurer, captive also provides access to funding at a lower cost to a lender of a third party. «
The reinsurance used as a risk management tool
More than half of the respondents (53.2 per cent) reported the use of reinsurance as a risk management tool. The management of capital is also cited as a reason to assign the risk by 3.2% of insurers. For nearly four out of ten enterprises to 39.9 %, it is a combination of these two factors. In 3.7% of cases, other reasons are given.
30 % of the risks ceded to the foreign
Although a majority of the risk is ceded to reinsurers in the u.s., 30 % are sent to reinsurers abroad, highlights A.M. Best. Insurers are choosing foreign reinsurers to realize capital gains and income tax. The Barbados comes in first place with 9.5% of the risks being ceded, Ireland is second with 7 % and Bermuda with 4.7 %.
However, the firm’s rating warns that the management teams of risks must take account of more risk when they are sent abroad, as a less good odds of financial strength or a less good experience of management of reinsurance.