Joye, good one. Reinsurance is big business.
Reinsurance is insurance that property and casualty insurance companies buy in cases of catastophic loss. The insurance usually covers companies that write personal and commercial policies in a region or territory prone to weather related events. (hurricanes being the most common risk of reinsurance).
You've heard the term the banker's bank, such as Irving Trust or other large players out of the spotlight but serve as the banker for the known commercial banks. Reinsurers are the insurance company's insurance company.
Many reinsurers are set up with threshhold limits, so even if an insurance company has to pay losses totally $10 million for one catastrophe, the resinsuring agreement may not be applicable until loss payments exceed 15m for any one catastrophe, and even then it may only be a percentage that is paid back to insurance companies. (just an example of course, but how such coverage applies)
The one company I worked for had re-coverage in the Carolina's, the other one I worked for surprisingly didn't.
Using historical data and reconstruction value information, they are able to price their product properly and in my 18 years I've seen reinsurers do very well.
More than you ever wanted to know about reinsurance huh? : )
pssst watch KNOH. Look up today's news, o/s and keep thinking to yourself "SPEA II, SPEA II" as you read. : )
I know I said it a couple of weeks back too, but it has all the makings of a play waiting to explode.
Bo
