Mystic's Preferred Choice: Coinsurance
Peter M. Wilson, CPA, FLMI
For over 30 years, Mystic Insurance Intermediaries has recommended the use of coinsurance as our preferred choice of reinsurance. We strongly advise all companies to utilize coinsurance when you want to ensure the acceptance of your reserve credits.
With coinsurance, each party to the transaction has to give a little in order to effectively complete the transaction. Reinsurers must now assume full investment risk transfer. Ceding companies, on the other hand, must give up asset control and the setting of crediting rates.
In earlier times the above concessions would have been automatic deal breakers. However, times have changed. Regulatory oversight dictates that reinsurers and ceding companies must now become full partners to each coinsurance transaction into which they enter.
It is good for the industry as well as for the consumer to have this give and take on the negotiations for coinsurance transactions. If the underlying products make economic sense on the direct side, then they will for reinsurance purposes as well. Experience has shown us that costs that went unrecognized before in conventional co-mod co reinsurance transactions are now being priced for in coinsurance structures.
A more efficient reinsurance marketplace has emerged from the use of coinsurance. Reinsurers whose only motivation is tax or deployment of idle surplus with limited risk passage can no longer participate in the coinsurance marketplace. Professional reinsurers who possess the expertise to analyze and accept all elements of risk transfer are able to capture a significant share of coinsurance transactions.
Ceding companies, while giving up total control of assets and the setting of crediting rates, can be assured that their underlying assumptions are sound if the reinsurers have accepted their business for reinsurance on a coinsurance basis.
Mystic's role is to help companies and reinsurers wend their way down the path of the new coinsurance marketplace. If you are unsure whether an existing treaty can live up to the spirit and intent of the new reinsurance regulations, we at Mystic can assist you in reviewing and in rewriting your treaty, if necessary.
We will continue to advocate coinsurance as the preferred solution to accomplish full risk transfer. There is a middle ground solution for reinsurer and ceding company alike in coinsurance transactions. If you would like to draw upon our experience and preferred solution please give us a call.
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