Pricing reinsurance contracts

The key objectives of an insurer in arranging reinsurance are inter alia; increasing capacity to handle larger risks by passing to the re insurer that part of the exposure which would not normally bear, because of financial constraints; enhancing ability to accept larger lines than capital allows; stabilizing operating results from year to year with the re insurer absorbing larger claims or catastrophe losses; increasing the chances making a profit by reinforcing the underwriter’s attempts to establish an account which is homogeneous in both size and quality of risk; ability to write and new risk exposures. The functions of reinsurance can be considered as providing services to protect increased capacity, financial stability, stabilization of claims ratio, accumulation of claims under different classes, spread of risks, protection of solvency margins and stabilize profits. The reinsurance helps to absorb newer risk exposure arising from economic changes...