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Chapter

B Buyers of reinsurance

The reinsurance markets have a notable feature that distinguishes them from other markets. That is to
say insurers and reinsurers alike will, in varying degrees, operate in different transactions in the role of
both a buyer and a seller of reinsurance products, needing to buy reinsurance protection for the risks
they write while offering to sell coverage to others.

B1 Insurance companies
Insurance companies form the most important group of reinsurance buyers in terms of the volume of
Insurance companies
form the most reinsurance business transacted. It is a very diverse group ranging from small, newly established
important group of companies operating in a developing country to the major international insurance groups with annual
reinsurance buyers
premium incomes in excess of £1 billion from business transacted in many different countries.
The overall demand that these companies place on both their domestic and international reinsurance
markets will be influenced by those factors that an individual company takes into account when fixing
the limits of its own retentions and deciding upon its reinsurance programme, as well as by other
environmental factors.
Governments may determine that foreign insurers which are not licensed in their country cannot
participate in the domestic insurance market. In such cases, local insurers may place some of their
outwards reinsurances with foreign insurers, so enabling them to achieve access to that market.
There is a relationship between a number of the factors mentioned in section A and the size, structure
and practices of the local insurance markets in which an insurer is operating.
Be aware
In a country with a small insurance market or with a legal requirement to insure 100% of cover with a single local
insurer, reinsurance is needed to enable the insurer to keep its retained risk at a manageable level. In large developed
markets, such as Germany, there is often little co-insurance since insurers meet the needs of their large commercial
customers by providing them with enough gross capacity, which is supported by reinsurance. Reference copy for CII Face to Face Training

B2 Lloyd’s syndicates
The Lloyd’s market does not consist of a single risk-bearing organisation but is made up of many
separate underwriting operations, known as syndicates.
The nature of the account written by a Lloyd’s syndicate can be more complex and varied than that of a
general insurance company and this possibility demands a more sophisticated approach to buying
reinsurance. For example, the account may include direct and reinsurance acceptances as well as
low-level and high-level ‘per risk’ exposures and worldwide catastrophe exposures. Therefore, there is a
particular need to protect the account from the risk of accumulations of risks in the one location, the
extent of which may be unknown.

Activity
Visit Wikipedia, the free online encyclopaedia, for details of some of the more bizarre risks that Lloyd’s of London
underwrites that it would need to protect by the purchase of reinsurance.

Lloyd’s has become increasingly dominated by syndicates backed up by corporate capital; the
reinsurance needs of these corporate entities can be said to be similar to those of insurance companies.
Syndicates’ reinsurance buying is generally handled through the intermediary of Lloyd’s brokers and
much of the reinsurance purchased by Lloyd’s syndicates will be placed with companies in London and
the international reinsurance markets, in addition to some placements with other Lloyd’s syndicates.

Useful website
www.lloyds.com