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9/6 M97/February 2018 Reinsurance

Table 9.1: Extraneous environmental features
Potential claims Following 9/11, insurers and reinsurers have had to re-evaluate their potential exposure to
catastrophes and purchase reinsurance accordingly.
New products With a lack of capacity in some areas of the reinsurance market, insurers have again
reconsidered other financial alternatives to traditional reinsurance covers.
Financial markets A sharp decline in the value of financial markets in the early 2000s followed by an even more
dramatic downturn in 2008 means that reinsurers can no longer count on investment income
as a means of offsetting reinsurance deficits. This has affected the level and price of the
reinsurance available.
While equities still play an important part in determining the pricing of reinsurance, financially
sound underwriting has become more prevalent as companies seek a better underwriting
return on capital.
Coverage The broader the coverage available the more likely that reinsurance will be purchased.
Conversely, coverage tends to be restricted in a hardening market.
The terrorist attacks of 9/11, and subsequent losses, raised the issue of how coverage can be
made available for terrorism-related risks. Individual international markets have devised
innovative ways of providing cover given the initial intention of reinsurers to apply terrorism
exclusions to the cover they provide.

Question 9.2
Following major market losses such as 9/11, Hurricane Katrina and Hurricane Ike, what are the likely effects on
reinsurers’:
a. reserves;
b. return on capital;
c. terms and conditions of coverage;
d. EML calculations?

Reinforce Reference copy for CII Face to Face Training
Before you move on, make sure that you have a full picture of the requirements for a successful international centre
of reinsurance.

B Global reinsurance markets

By way of introduction to the main markets for the acceptance of reinsurance, appendix 9.1 (available on
RevisionMate) gives a sense of the size of the underlying (non-life) insurance market by region.
We shall now review the main markets. For convenience, these have been grouped into a number of
principal regions where the underwriting of international reinsurance, often in addition to a domestic
account, has become an important feature of the financial sector.

Be aware
According to estimates compiled by Swiss Re’s Sigma team, total insured losses for the global insurance industry in
2016 from natural catastrophes and man-made disasters reached US$46bn and US$8bn, respectively, compared
with total insured and uninsured losses of US$175bn, highlighting the widespread lack of insurance protection
9 globally against catastrophic events.
Chapter

B1 London Market

The London Market can be divided into two components: Lloyd’s and the London Market companies. The
London Market can be
divided into two London Market companies have formed their own centralised unit – the International Underwriting
components Association (IUA). Many of the participants within the London Market are subsidiaries of international
insurance companies. This gives them two advantages: