Understanding and Monitoring Reinsurance Counterparty Risk

Bulletin Français d'Actuariat, 2013, Vol. 13(26), 121-138

15 Pages Posted: 3 Nov 2012 Last revised: 4 Feb 2014

Mathieu Gatumel

University of Savoy - Institut de Recherche en Gestion et Économie (IREGE); French National Center for Scientific Research (CNRS) - Centre de Recherches Appliquées à la Gestion (CERAG)

Sabine Lemoyne de Forges

affiliation not provided to SSRN

Date Written: November 1, 2012

Abstract

Since 2008, catastrophic losses and financial turmoil have deeply shaken the insurance and reinsurance industries. Severe difficulties encountered by sector leaders like AIG and Swiss Re have shed light on the potential fragility of the players, and have increased attention on the subject of reinsurance counterparty risk. This corresponds to the exposure of an insurance company to reinsurer failure and is difficult to assess due to a scarcity of reliable measures. It has long been considered as largely auto-regulated by the insurance market. The impact of reinsurance credit on an insurers’ balance sheet, market complexity and lack of coordinated responses among states begs questions concerning the role of control and regulation. In this article, we address the current state of reinsurance counterparty risk and existing means by which to measure it. We then discuss the impact of market discipline on this risk and point out the importance of control within the reinsurance industry. We particularly look at the key role of regulation in providing better risk measurement tools to assist in assessing the importance of reinsurance counterparty risk on insurance levels and the systematic development of risk management tools.

Keywords: Reinsurance Counterparty Risk, Solvency, Market Discipline, Regulation

JEL Classification: G22, G28, G32, G33

Suggested Citation

Gatumel, Mathieu and Lemoyne de Forges, Sabine, Understanding and Monitoring Reinsurance Counterparty Risk (November 1, 2012). Bulletin Français d'Actuariat, 2013, Vol. 13(26), 121-138. Available at SSRN: https://ssrn.com/abstract=2169930 or http://dx.doi.org/10.2139/ssrn.2169930

Mathieu Gatumel (Contact Author)

University of Savoy - Institut de Recherche en Gestion et Économie (IREGE) ( email )

4 Chemin de Bellevue
BP 80439
Annecy-le-Vieux, 74944
France

French National Center for Scientific Research (CNRS) - Centre de Recherches Appliquées à la Gestion (CERAG) ( email )

150 rue de la Chimie, BP47
Grenoble Cedex 9, 38040
France
+33 4 76 28 45 78 (Phone)

Sabine Lemoyne de Forges

affiliation not provided to SSRN

No Address Available

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