Meeting the Reinsured's Needs

PLANNING A REINSURANCE PROGRAM                          324
     Business: Knowledge of the Book Being Reinsured
          Line Counts: Policies, Limits, and Exposures

          Concentration Studies
          Experience Figures

          Loss Studies
               Loss Severity
               Accident Period
               Loss Development
               Occurrence or Aggregate Loss
               Claims Inflation

     Financial Strength and Rating

     Existing Reinsurance
          Property Business
          Casualty Business
     Experience History for the Typical Company
          Property (First-Party) Business
          Casualty (Third-Party) Excesses
REVIEWING AND REVISING                                                  379

     Property Program
          Pro Rata
          Working (Risk) Excess
          Catastrophe Program
     Casualty Program
OVERALL CONSIDERATIONS                                                396
SUMMARY                                                                                 398


Meeting the Reinsured's Needs

by Willis T. King, Jr. *

     Capital flows within the global economy, seeking profit. A reinsured should realize that reinsurers over a period of time expect to make profits, indeed must be profitable to remain in business. Concurrently, an insurer seeks reinsurance to support its own planned profits in specific lines of insurance, albeit perhaps over a different span of time than for reinsurance. Reinsurance supports a reinsured's needs, based on a plan for mutual gain.

     Premiums, expenses and losses will impact both sides of a treaty, but all three must be considered within the marketplace itself and within the overall strategies of reinsureds and reinsurers. A large, publicly traded financial group may possess the capital to allow its insurance subsidiaries the freedom to absorb dramatic fluctuations in policyholder surplus, thus minimizing potential reinsurance costs. The management of the same financial group must consider the impact on the value of its shares from any large change in earnings caused by adverse net losses in a short time period. Similarly, a mutual insurer's ability to retain and support its policyholders will be impacted by significant short-term fluctuations in an insurer's surplus.

     Meeting a reinsured's needs is a dynamic challenge. However they are met, they will be changed by experience and capitalization in the insurance industry and in the reinsurance marketplace. No reinsurance program is perfect. Insurance companies that seek reinsurance differ from one another. Thus, a program that would be ideal for Company A might be a disaster for Company B. Reinsured companies, moreover, do not remain static. Their business and their objectives can change significantly. Sometimes the changes are initiated by a company itself; at other times the environment in which the company operates forces alterations in operating philosophy. Just as no corporate plan should . . .

* Chairman and CEO, WILLCOX INCORPORATED REINSURANCE INTERMEDIARIES, 180 Maiden Lane, 31st Floor, New York NY 10038. An autobiography follows the chapter. Editor's note: The author of this revision wisely chose to retain much of the original work by the 1980 author, Richard F. Gilmore, retired President of the MERCANTILE AND GENERAL REINSURANCE COMPANY OF AMERICA.

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