Summary |
Reinsurance is governed by strict terms of trade, sometimes expressed in wordings covering many pages. It is, nevertheless, an inexact science since there can be neither a standard need nor a standard answer. Moreover the differing philosophies of the participants add to the difficulties often experienced in appreciating the motivation involved. These motivations range from the highly professional, actuarially-based, long-term approach of underwriters seeking to ensure maximum protection and balance at a cost proper to both sides, to other forms of trading based simply on nationalism, ignorance or fear: or to the simple case of an underwriter who is able to persuade another to write a bad risk at the wrong rate.
Reinsurance has grown until it has, belatedly, attracted the attention of regulatory authorities who are becoming concerned at what they see. Their duty here is not to protect innocent policy holders but to ensure solvency against a situation that might arise if any underwriter became over-dependent on his reinsurers. But it is undoubtedly here to stay as a necessary tool for an underwriter in shaping an account, in balancing his book, and in combining boldness with wisdom.
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