| Intermediation in Reinsurance Markets | 1 |
---|
| Editor’s Preface | 6 |
| Author’s Preface | 8 |
| Contents | 10 |
| List of Figures | 18 |
| List of Variables | 22 |
| List of Abbreviations | 24 |
| Part: | 24 |
| 26 | 24 |
---|
| Part II: The Framework for Reinsurance Broker Activity | 32 |
| 1 The Concept of Reinsurance: Means of Risk Transfer, Pricing, and Market Cycles | 32 |
| 1.1 Preliminary Remarks | 32 |
| 1.2 Definition of Reinsurance | 33 |
| 1.3 Forms of Reinsurance | 35 |
| 1.4 Types of Reinsurance | 38 |
| 1.5 Pricing of Proportional Reinsurance Contracts | 42 |
| 1.6 Pricing of Non-Proportional Reinsurance Contracts | 46 |
| 1.6.1 Preliminary Remarks | 46 |
| 1.6.2 Net Risk Premium | 47 |
| 1.6.3 Cost of Capital | 51 |
| 1.6.4 Loadings | 58 |
| 1.6.5 Types of Premium Payment | 62 |
| 1.7 Concept and Benefits of Co-Reinsurance Agreements | 63 |
| 1.8 The Influence of Reinsurance Market Cycles on the Price for Reinsurance | 65 |
| 1.8.1 Identification of Market Cycles in Primary Insurance and Reinsurance Markets | 65 |
| 1.8.2 Underwriting-Induced Changes | 68 |
| 1.8.3 Capital Supply–Induced Changes | 70 |
| 2 Reinsurance Market Overview: Size, Market Concentration, and Recent Developments | 77 |
| 2.1 Preliminary Remarks | 77 |
| 2.1.1 Objective and Structure of the Analysis | 77 |
| 2.1.2 Data Sets and Estimation Methodology | 78 |
| 2.2 Reinsurance Market Development | 81 |
| 2.2.1 Development of the Global Reinsurance Market Premium Volume | 81 |
| 2.2.2 Development of Reinsurance Market Concentration | 87 |
| 2.3 Geographic Origin of Reinsurance Cover | 97 |
| 2.4 Selected Points of Differentiation of Reinsurance Companies | 101 |
| 2.4.1 Volatility of Combined Ratios | 101 |
| 2.4.2 Choice of Distribution Channel: Broker Reinsurers and Direct Reinsurers | 107 |
| 3 Reasons for Reinsurance Purchase — A Critical Evaluation | 109 |
| 3.1 Preliminary Remarks | 109 |
| 3.2 Improved Diversification and Efficient Risk Allocation | 110 |
| 3.2.1 Primary Risk Aversion | 110 |
| 3.2.2 Improvement of Risk Diversification Efforts | 111 |
| 3.2.3 Transfer of Underwriting Risk and Increase of Underwriting Capacity | 112 |
| 3.3 Reduction of Financial Distress and Bankruptcy Costs | 117 |
| 3.4 Government- and Regulatory-Induced Demand for Reinsurance | 118 |
| 3.4.1 Balance-Sheet Design and Tax Optimization | 118 |
| 3.4.2 Reduction of Regulatory Capital Requirements | 120 |
| 3.5 Reinsurance and Information Asymmetries | 122 |
| 3.5.1 Conflicts between Shareholders and Policyholders | 122 |
| 3.5.2 Management Control | 123 |
| 3.5.3 Reinsurance Cover as Solvency-Signaling Device | 126 |
| 3.5.4 Reduction of Capital Costs | 129 |
| 3.6 Knowledge-Transfer and Service | 130 |
| 3.7 Exploitation of Comparative Advantages of Reinsurance | 133 |
| 3.8 Critical Evaluation of Reasons for Reinsurance Purchase | 135 |
| 4 Reinsurance Market Distortions | 138 |
| 4.1 Preliminary Remarks | 138 |
| 4.2 Problems of Adverse Selection | 139 |
| 4.3 Problems of Moral Hazard | 148 |
| Part III: Reinsurance Intermediation: Market Development, Intermediary Tasks and Remuneration, and Regulation | 154 |
| 1 Preliminary Remarks | 154 |
| 2 Reinsurance Broker Market | 156 |
| 2.1 Reinsurance Broker Origins | 156 |
| 2.2 Recent Developments in the Reinsurance Broker Market | 157 |
| 2.3 Market Concentration and Competitive Environment | 159 |
| 2.4 Regional Importance of Reinsurance Brokers | 162 |
| 3 Reinsurance Broker Tasks3.1 Preliminary | 164 |
| 3.1 Preliminary Remarks | 164 |
| 3.2 Choice of Reinsurance Broker and Intermediation Clause | 165 |
| 3.3 Risk Analysis and Structuring of Reinsurance Demand | 167 |
| 3.4 Placement of Reinsurance Cover | 169 |
| 3.5 Policy Administration, Claims Management, and Risk Management Consulting | 173 |
| 4 Reinsurance Broker Remuneration | 174 |
| 4.1 Timing and Payment | 174 |
| 4.2 Premium Volume–Based Commissions | 174 |
| 4.3 Contingent Commissions | 175 |
| 4.4 Fee-for-Advice | 177 |
| 4.5 Interest Earnings on Transfered Payments | 177 |
| 5 Regulation of Reinsurance Brokers | 178 |
| 5.1 Rationales for Reinsurance Broker Regulation | 178 |
| 5.2 Reinsurance Broker Regulation in the U.S. | 180 |
| 5.3 Reinsurance Broker Regulation in the EU | 182 |
| Part IV: The Market Function of the Reinsurance Intermediary | 186 |
| 1 Preliminary Remarks | 186 |
| 2 Comparison of Financial Intermediation in Capital, Primary Insurance, and Reinsurance Markets | 189 |
| 2.1 Preliminary Remarks | 189 |
| 2.2 Financial Intermediation in Capital Markets | 189 |
| 2.3 Differentiation of Financial Intermediation in Capital and Reinsurance Markets | 192 |
| 2.4 Intermediation in Primary Insurance Markets | 194 |
| 2.5 Differentiation of Intermediation in Primary and Reinsurance Relationships | 197 |
| 2.5.1 Professional Contracting Parties | 198 |
| 2.5.2 Obligatory Reinsurance Treaties | 199 |
| 2.5.3 Market and Business Conduct | 202 |
| 2.5.4 Conclusion | 203 |
| 3 Influence of Reinsurance Intermediation on Agency Costs: Information Intermediation in Reinsurance Markets | 204 |
| 3.1 Preliminary Remarks | 204 |
| 3.2 Information Intermediation before Reinsurance Contract Conclusion | 205 |
| 3.2.1 Preliminary Remarks | 205 |
| 3.2.2 Risk-Adequate Reinsurance Premiums | 206 |
| 3.2.3 Extension of Available Reinsurance Cover | 209 |
| 3.2.4 Reinsurer Default Risk Classification | 210 |
| 3.2.5 Conclusion | 212 |
| 3.3 Information Intermediation during and after the Reinsurance Treaty Period | 213 |
| 3.
|