The effect of ceded reinsurance on solvency of primary insurers
Item and associated files
Author
Chen, Yueyun (Bill) See all items with this value
Hamwi, Iskandar S. See all items with this value
Hudson, Tim See all items with this value
Date
February 2001
Volume
7
Issue No.
1
Pages
65-82
ISSN
1083-0898 See all items with this value
e-ISSN
1573-966X See all items with this value
Abstract
Primary insurance companies diversify their underwriting risk and thus improve their financial stability through buying reinsurance contracts. However, excessive use of reinsurance by an insurance company may signal the presence of financial difficulties. In fact, as research shows, a less solvent insurer tends to use more reinsurance because of its inability to raise needed capital in the financial market. Thus, regulators need to pay extra attention to insurers that overly use reinsurance since such behavior could signal an insurer's disproportionately high risk and its eventual probability of insolvency.