At the close of 2014, the United States Department of the Treasury’s Federal Insurance Office (“FIO”) published a report titled The Breadth and Scope of the Global Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United States. The FIO was established within the Treasury to monitor the insurance sector, and is tasked with detecting issues that could contribute to systemic risk in the insurance industry or the national financial system in general. FIO’s yearly publication of this report, which outlines how the global reinsurance industry plays a role in the United States, is mandatory under the Dodd-Frank Act.
The report begins with a summary of the history and functions of reinsurance as a product and an industry. It states that “global reinsurers are vital to U.S. insurers” and are important for national economic prosperity. Some of the many benefits the report says global reinsurers bring to the insurance sector include stabilizing underwriting experience, increasing underwriter capacity, and facilitating entrance to and exit from markets. Reinsurers also help insurers maintain affordable product pricing and address risk diversification.
Reinsurance serves an especially important function protecting against the accumulation of losses from natural disasters and other similar catastrophes. For example, 2005’s Hurricanes Katrina, Rita, and Wilma resulted in approximately $90 billion in U.S. insured property losses. Non-U.S. reinsurers paid approximately $59 billion of that amount. 2012’s Superstorm Sandy resulted in an estimated $26 billion in insured losses, about 40% of which was reimbursed through reinsurance. Finally, reinsurers indemnified insurers for about 60% of the insured losses from the September 11th terrorist attacks, which at the time was the largest insured loss in U.S. history.
According to the report, the global reinsurance market helps insurers prepare for and respond to catastrophes and natural disasters, and benefits the U.S. economy as a whole.
PIB Law represents national banks, retailers, reinsurers, insurers, mortgage lenders and financial services companies from its offices in New Jersey, New York City, Philadelphia, Boston, San Antonio, and Chicago. For more information on reinsurance and insurance issues, contact PIB Law at 908-725-9700.