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Reinsurance: An evolving risk for those in governance

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Reinsurance is often a fundamental aspect of an insurer’s business strategy and those charged with governance should be familiar with the basic building blocks of an insurer’s reinsurance program. Whether the oversight of an insurer’s reinsurance program falls to the board of directors, the finance committee or a stand-alone committee, those in an oversight role must be cognizant of the evolving nature of the reinsurance market and the related risks. This can place great pressure on those in an oversight role as an insurer may rely heavily on its reinsurance program as a business strategy and the risks related to the reinsurance market can be complex.

It is vital that those providing oversight have proactive discussions prior to the insurer entering into any reinsurance contracts. Key questions to consider include:

  • What is the business purpose of the reinsurance contract?
  • Does the reinsurance contract align to the long-term strategy of the insurer and assist in achieving certain business objectives?
  • Are there other separate agreements that affect the reinsurance program?
  • Are there unique contractual features that prescribe the timing of payments or frequency of reporting?
  • Are there unique contractual features that increase the insurer’s risk retention?
  • Has risk transfer been evaluated and documented?
  • What are some of the potential outcomes of the reinsurance contract within a range of reasonable outcomes?
  • Is there any reporting time lag within the reinsurance contract that results in information not being received and reported in a timely manner?
  • What is the quality of the reinsurers that are participating in the reinsurance program?
  • Have all risks pertaining to the reinsurance contract been disclosed and discussed?

To learn more about the risks related to reinsurance and how to mitigate those challenges, download our white paper

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