Optimizing your protection through structured reinsurance

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Optimizing your protection through structured reinsurance

The basic dilemma for anyone buying reinsurance is how to get the best coverage for the lowest price. While there is no magical way to achieve this, one efficient thing to do is to buy the right contract, which only provides the coverage you actually need. 

 

In the current “hardening” market, and more generally in an environment where the need for “optimization” and “efficiency” have become the norm, insurance companies and even industrial and commercial companies are increasingly considering tailor-made insurance or reinsurance. These structured solutions protect them against a range of risks, while keeping the (re)insurance premium within their budget.

 

Based on actual cases of companies facing price increases – which in turn increase their retention - this technical newsletter aims to illustrate the main points to consider when designing bespoke contracts providing the right level of risk transfer. 

 

As well as providing optimal value for money, tailor-made reinsurance has the advantage of taking accounting issues into consideration, such as certainty on performance and impact on solvency, capital and liquidity. With regard to accounting, the recognition of reinsurance contracts in financial reporting is key. Companies see the benefit of a reinsurance contract through the loss mitigation it provides, as recognized in their income statement (P&L), an annual measure of their results. The purpose of structured reinsurance is to maximize this accounting benefit while limiting the overall cost of the (re)insurance transaction throughout the entire contractual period.

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