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Friday, October 18, 2019

Reasons for a Softening Insurance Market Assignment - 1

Reasons for a Softening Insurance Market - Assignment Example It is evidently clear from the discussion that soft market conditions are likely to develop during periods of relatively low claim severity and frequency following hard market periods with opposite claim circumstances and re-insurers can command higher premium rates. During a soft market, a primary insurer such as Margin has more negotiating power in dealing with re-insurers than in a hard market. They can take advantage of this power by !) negotiating a premium reduction. 2) reduce their retention without an increase in cost or 3) obtain an increase in reinsurance covers at the same cost. Of the 3 alternatives, unless Margin feels they are already very well protected from catastrophic loss, option 1 should be the least favored one. Option 2 which I assume means keeping the same type of reinsurance but reducing their retention, I submit would be preferable because it would protect them better in case claims are more frequent and/or severe than anticipated. Option 3 I assume means con sidering also different types of reinsurance providing greater protection for the same cost. If so I think Margin should investigate this option. If they don’t already have stop-loss coverage for example perhaps this should be considered. As it protects their premium income if this can be obtained without additional cost. The bottom line for Margin is first of all for them to asses in a relatively worst-case scenario the number of claim costs it can safely bear without possibly going bankrupt, and then to consider the best type of reinsurance available for their portfolio, and cede beyond their retention to re-insurers at the lowest possible cost consistent with re-insurers’ good claim payment reputation and viability.

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