Insurers who leverage their balance sheets by using reinsurance expand their ability to underwrite business with less capital than if they were to purchase less or no reinsurance. Hence, insurers' performance will be improved having less capital and more income produced by ceding commissions. Obviously, too much leverage in terms of reinsurance can migrate control from the insurers to reinsurers and may result in a lack of confidence in an insurers' ability to underwriter business. If selected insurance enterprises choose to re-deploy capital into financial services, such as swaps, credit enhancement, etc., it will require more capital, and less reinsurance will be permitted, which should produce higher product pricing, risk, and returns on capital. Current upward pricing trends are being driven by the enterprises' expected returns on capital.
Underwriters have to play the hand they are dealt.
They are only the messengers. The books of business that they are responsible for need to reflect the corporate goals. Some accounts may get a bit more favorable treatment, but then, some other accounts will pay a greater proportional share. IRMI Inc. IRMI is a Registered Trademark.