The use of traditional reinsurance for the customary benefits of financial stability, risk transfer and increased capacity is declining, according to a recent analysis of insurance industry information performed by Gallagher Re. Indeed, Gallagher's analysis of industry data since 2001 provides strong evidence that the landscape has changed.
Reinsurance provides many functions to an organization. The textbook definition of the benefits--spread of risk, protecting solvency margins, increasing profitability and developing capacity--makes the implicit assumption that the risk of loss is transferred to a third-party, non-affiliated company.
Not all reinsurance, however, is placed with non-affiliated companies. Indeed, a significant percentage of reinsurance is placed with affiliated organizations.
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