Cyber Risk in Reinsurance
February 12, 2025
High Sounding Rhetoric and the Reality of Diversity and Inclusivity Diversity and Inclusivity (D&I) is on everyone’s mind. With the emergence of the #MeToo movement where women worldwide reported their experiences related to sexual and gender based harassment and discrimination, most organizations these days talk a lot about promoting D&I. While some of this is […]
The business landscape of the 21st century is characterized by ever changing trends and events that happen with so much rapidity that they take most business leaders by surprise. Considering the high turnover of ideas and fads, it is no wonder that companies’ and their offerings in terms of products and services fail to click […]
Most of us would agree that it is ethics in practice that makes sense; just having it carefully drafted and redrafted in books may not serve the purpose. Of course all of us want businesses to be fair, clean and beneficial to the society. For that to happen, organizations need to abide by ethics or […]
Differences can not only arise between two individuals but involve many individuals in a group. One has to very careful while handling conflicts in a group as if not controlled at the right time can lead to major unrest and severe tensions. Let us learn more about conflict management in groups. Never ever implement any […]
Claims processing is probably the most important function for any insurance company. This is because this process is where the insurance company actually delivers on its commitment. The speed and convenience with which the claims are settled have a long bearing on the reputation of the insurance company. Nowadays, most insurance companies have started automating […]
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 *