# 8 Conclusion

The model outputs shed a better light on the way classical economic assumptions allow for understanding and reproducing the reinsurance market dynamics. Compared with previous analyses, our approach investigates the issues of reinsurance capacity to withstand important losses in a dynamic framework. Our model relies on a capacity constraint analysis, with a threshold probability of default for reinsurance rms. This factor may enhance the role of regulatory measures on the dynamics and the resilience of the reinsurance market either through the resistance to severe losses or through the time needed for capacity replenishment. Furthermore, we take into account the impacts of the rm choice on the market equilibrium to model potential strategic behaviors of large reinsurers. Our approach is innovative as we compute a dynamics of the market, based on these clear and tractable assumptions.

This analysis is only the rst step of a broader research agenda. Incorporating several lines of risk will rene the reinsurance demand model. A better calibration would allow a better understanding of the market features that inuence the market resilience. Recent data on reinsurance contracts would be needed to do so, and they are dicult to access. The long-term objectives of this model are to develop insights on the needed market capacity and to understand the insurance industry limits in providing disaster coverage. This question is critical when considering the current trends in insured and reinsured exposure. In addition to the classical economic trend issues (Hallegatte, 2011), the IPCC (2007) suggests a probable rise in the frequency and intensity of some natural disasters (e.g., storm surge and coastal oods). Several studies have proposed projections of future exposure due to these trends (see for instance Hanson et al. (2011) on the exposure in coastal cities) and the consideration of dierent scenarios will be necessary. How could the reinsurance industry be able to cover increasing risks, and how could specic policies and regulations enhance its ability to do so?

# 9 Acknowledgements

The authors wish to thank Patrice Dumas, Antoine Leblois and Valentin Przyluski for insightful discussions, and Pierre Picard, Dominique Henriet, Jean-Marc Tallon and Vincent Martinet for useful comments on a previous version of this paper. The authors also thank Risk Management Solutions, Inc., and especially Auguste Boissonnade and Patricia Grossi, for providing invaluable data to the analysis. The views expressed in this paper are the sole responsibility of the authors. They do not necessarily reect the views of the World Bank, its executive directors, or the countries they represent.

# References

- Aon-Benfield 2009. Reinsurance market outlook. resilient without assistance. Technical report, AonBeneld.

Aon Benfield 2010. Reinsurance market outlook. Technical report, Aon Beneld.

Blazenko, G. 1986. The economics of reinsurance. The <u>Journal</u> of <u>Risk</u> and Insurance 53:258277.

- Bohn, J. G. and Hall, B. J. 1999. The moral hazard of insuring the insurers, pp. 363390. In K. Froot (ed.), The Financing of Catastrophe Risk, chapter 1. The University of Chicago Press.

22