How Reinsurance Works & Its Impact on Stocks?

Insurance for Insurers

– 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

– Focus on 2–3 year horizon
– Buy low, wait for re-rating