Cyber Risk in Reinsurance
February 12, 2025
In the previous article, we have already studied the concept of layering and how it related to reinsurance policies. We are now aware that layering is used so that the risk can be comfortably placed between multiple reinsurance companies instead of a single reinsurer having to bear all the risk. Layering is a very popular […]
We have always associated leadership with a very visible and popular role which gives you recognition and a larger than life status as a leader however the level 5 leadership proposes quite opposing characteristics of a successful leader. Jim Collins and his research team were exploring the factors that made good companies great way back […]
Conflict has never benefitted anyone, instead it adds to one’s tensions and anxiety. It is better to discuss things and reach to an alternative benefitting all. Issues must not be dragged unnecessarily and efforts must be made to come to a conclusion involving the interests of all. No point in being adamant and rigid. One […]
Any decisions taken at any level have to take into account the conflicting needs of the individuals who are affected by the decisions and hence conflict resolution is a part of the decision making process. How well the conflicts are resolved depends on the skill and leadership traits of the decision maker. After all, any […]
High-Performance Teams as we all know can be a blessing for an organization, as such teams play a crucial role in boosting organizational productivity and growth by meeting challenging outcomes. But, such teams are also faced with several barriers or challenges which act as impediments in their journey of excellence. These barriers are caused due […]
In the previous article, we have read about what multi-year reinsurance contracts are. We now know what these unconventional contracts are and why they are becoming increasingly popular with the passage of time. However, we only understood the arrangement from the point of view of the ceding insurer.
It is important for us to also understand the pros and cons from the point of view of reinsurance companies. This is because reinsurance companies across the world are giving a mixed reactions. While some of them have been embracing the idea of multi-tower non-conventional reinsurance contracts, others have been trying to avoid it. This is possible because of the fact that some reinsurance companies are focusing on the pros of the arrangement whereas others are focusing on the cons.
In this article, we have a closer look at what those pros and cons are and how they impact the business of the reinsurance company.
The approach of consolidating various insurance towers into a single non-conventional contract has several benefits for the reinsurer as well. Some of the important benefits have been listed below:
The traditional financial theory believes that a diversified portfolio has a lower chance of loss. Up until now, reinsurance companies had to look for risks that were not correlated to each other in order to create a diversified portfolio. However, when it comes to multi-tower contracts, no additional actions need to be taken to ensure that the portfolio is diversified. Reinsurance companies are able to easily obtain a pre-diversified portfolio.
Most multi-tower contracts are for a period of greater than one year. This means that not only does the reinsurance company bag the sale immediately, but they are also relieved of the effort which needs to be put in while renewing the contract.
There are many reinsurance companies that are opposed to the idea of multi-tower reinsurance contracts. This is because of the following disadvantages.
Reinsurance companies find themselves pressurized to take on additional risk which is associated with product bundles. Many reinsurance providers would not accept such a high risk if it were in a single-tower contract. It is for this reason that traditional service providers generally steer clear of such non-conventional contracts.
The bottom line is that even though the reinsurance industry as a whole is moving towards multi-tower non-conventional reinsurance contracts, there are many reinsurance companies that are still averse to doing so. This is because there are many pros and cons of multi-tower contracts and each reinsurance company must make an individual decision based on its own internal decision-making parameters.
Your email address will not be published. Required fields are marked *