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 Février 2020 - L’assurance aujourd’hui
Are reinsurance companies overcapitalized?
By Anna BENDER
JLT Re
The cost of insurance and reinsurance tends to follow the classic supply and demand dynamic – if there is too much supply relative to demand, prices will decline and vice versa. In reinsurance, we tend to measure supply in terms of capital, i.e. the money available to (re)insurers to support the risks that they accept from their policyholders. Demand is defined as the amount of premium a (re)insurer is receiving from their policyholders in exchange for taking on a part or all of one or several risks. Over the years the cost of reinsurance has declined to almost unsustainable levels due to an increase in capital relative to demand.
We believe that falling prices in the reinsurance industry due to the supply and demand argument are somewhat misguided. The cause for the increasing levels of (re)insurer capital over the past few years are mainly driven by the increasing demands of the rating agencies. High financial strength ratings as assigned by the rating agencies have become a necessity to (re)insurers in order to successfully compete in the market and significant amounts of capital, often far in excess of regulatory demands, tend to be required to achieve a high financial strength rating.
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 February 2020 - The insurance industry today
Are reinsurance companies overcapitalized?
By Anna BENDER
JLT Re
The cost of insurance and reinsurance tends to follow the classic supply and demand dynamic – if there is too much supply relative to demand, prices will decline and vice versa. In reinsurance, we tend to measure supply in terms of capital, i.e. the money available to (re)insurers to support the risks that they accept from their policyholders. Demand is defined as the amount of premium a (re)insurer is receiving from their policyholders in exchange for taking on a part or all of one or several risks. Over the years the cost of reinsurance has declined to almost unsustainable levels due to an increase in capital relative to demand.
We believe that falling prices in the reinsurance industry due to the supply and demand argument are somewhat misguided. The cause for the increasing levels of (re)insurer capital over the past few years are mainly driven by the increasing demands of the rating agencies. High financial strength ratings as assigned by the rating agencies have become a necessity to (re)insurers in order to successfully compete in the market and significant amounts of capital, often far in excess of regulatory demands, tend to be required to achieve a high financial strength rating.
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