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REINSURANCE
AND REINSURANCE COSTS
As an Insurance Company the
Risk Retention Group will want to protect its Capital and Surplus against
catastrophic losses. This may take the
form of a single event such as an explosion or the Union Carbide disaster at Any underwriter must retain for
its own account at least some of the risk it assumes. It can rarely “lay off” the whole thing on re-insurers. In practical terms this means that a Risk
Retention Group will probably have to pay at least 10% of all losses net. Beyond whatever percentage of each
loss or aggregate losses in excess of those retained. This is reinsurance
which is costly. And it means that you
have to share a substantial part of the premium with the re-insurers. For the most part reinsurance companies are
part and parcel of the commercial insurance market. Re-insurers look at both classes of risk and
primary insurers. Until the primary
insurer (in this case the Risk Retention Group) is tested and attains a
“track record” as compared with other conventional insurers, you can expect
that re-insurers will drive a hard bargain simply because the Risk Retention
Group’s underwriting performance is relatively unknown and imponderable and
because there is relatively little regulation. This state of affairs also suggests that
Risk Retention Groups will need to shop among a larger number of re-insurers
than commercial insurers to meet their needs, adding still further to their
costs. CLICK ON: Stop Loss Insurance |
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F.
Darrell Lindsey State
Approved Captive/RRG Manager |
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