Regulators to Target Reinsurance Catastrophe Concentration

International insurance regulators will study the reinsurance industry’s catastrophe cycles to determine if those risks pose a “systemic risk.”

The International Association of Insurance Supervisors (IAIS) will issue a report early next year that will focus on risk concentration, retrocession “spirals” and other “stress scenarios” following extreme catastrophe events, according to an IIAS statement.

The goal of the report, according to the IAIS, is to determine if reinsurers are underestimating their catastrophe exposure because of incomplete or misleading information from carriers.

“Risk concentrations may rise on the side of reinsurers, because they are one step removed from the underwriting of primary insurers, and they may receive incomplete risk information from their primary cedants,” the organization said in a statement Tuesday. “[The] answer to the question whether reinsurers are exposed to high and potentially systemic exposure concentrations can only be given based on data that include detailed information about the risk profile of the primary business ceded to reinsurers.”

The review of catastrophe risk concentration was disclosed in a report issued by the IAIS on Tuesday that generally gave the insurance and reinsurance industry a passing grade in terms of systemic risk, arguing that the industry has withstood the 2008 financial crisis better than the banking industry.

Regulators cautioned, however, that a study of catastrophe risk concentration was needed given reinsurers’ unique set of risks.

“Data collected by the IAIS in the future may shed light on questions that in the past could be explored only through plausible a priori reasoning. This is true, for example, for the study of risks arising from the concentration of risk exposures.”

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