Reasons for a Softening Insurance Market Assignment - 1

Reasons for a Softening Insurance Market - Assignment ExampleIt is evidently clear from the discussion that easily market conditions are likely to develop during periods of relatively low claim severity and frequency following hard market periods with opposite claim slew and re-insurers can command higher premium rates. During a soft market, a primary insurer such as Margin has more negotiating power in dealing with re-insurers than in a hard market. They can take advantage of this power by ) negotiating a premium reduction. 2) reduce their retention without an increase in cost or 3) obtain an increase in reinsurance covers at the same cost. Of the 3 alternatives, unless Margin feels they are already very well protected from harmful loss, option 1 should be the least favored one. Option 2 which I assume means keeping the same type of reinsurance but trim down their retention, I submit would be preferable because it would protect them better in case claims are more frequent and/or severe than anticipated. Option 3 I assume means considering also different types of reinsurance providing greater protection for the same cost. If so I think Margin should investigate this option. If they dont already have stop-loss coverage for example perhaps this should be considered. As it protects their premium income if this can be obtained without additional cost. The bottom line for Margin is frontmost of all for them to asses in a relatively worst-case scenario the number of claim costs it can safely bear without possibly going bankrupt, and then to consider the outmatch type of reinsurance available for their portfolio, and cede beyond their retention to re-insurers at the lowest possible cost consistent with re-insurers good claim payment reputation and viability.