– Insurers offload large or uncertain risks – Used for catastrophe cover, large policy risk – Common in health, crop, and property insurance
How Reinsurance Works
– Insurer pays a premium to reinsurer – In return, reinsurer covers part of major claims – Reduces volatility in insurer earnings
Why It Affects Stocks
– High ceding = lower profit but safer book – Limited reinsurance = risk of huge losses – Premium hike or reinsurance withdrawal hits margins
Risks in Reinsurance Strategy
– Rising reinsurance costs post-catastrophes – Global reinsurance capacity constraints – Over-reliance leads to underpricing of risk
Investment Insights
– Track reinsurance ratios in annual reports – Evaluate if claims are well-covered by reinsurers – Prefer insurers with diversified global reinsurance partners