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Why use reinsurance

A

Alan2007

Member
Is this correct shown below?

The company may not be able to accept larger cases even if it can accept individuals on standard rates. If it took on larger cases then it could pay out larger amount of claims which it may not be able to afford and threaten the solvency of the company and it will make a loss. This is known as claims volatility risk.

The company can use reinsurance to pass some of its mortality risk. Therefore it will be able to accept larger cases and have the excess above certain level reinsured. The company will be able to reinsure a higher proportion of large risks (ie use individual surplus) and therefore reduce claims volatility and produce more stable profits.

Am I correct that large risks refers to the fact that larger policies carries bigger risks?

Many Thanks:cool:
 
I think so ie potential larger claims = bigger risk, but not sure what you mean when you say "even if it can accept individuals on standard rates". Also, claims can be volatile without large caims being a problem.
 
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