Reinsurance Markets: How Risk Gets Spread Globally

The Purpose of Reinsurance

Reinsurance is insurance for insurance companies. Primary insurers purchase reinsurance to reduce their exposure to large losses, stabilize financial results, and increase their capacity to write new business. The global reinsurance market facilitates the distribution of risk across entities worldwide, preventing concentrated risk from threatening any single company's solvency. Major reinsurance hubs include Munich, Zurich, London, Bermuda, and Singapore.

Market Structure

The reinsurance market operates through treaties (covering portfolios of risk) and facultative placements (covering individual risks). Treaty reinsurance is negotiated annually, typically during renewal seasons in January, April, June, and July. Reinsurance brokers like Aon, Guy Carpenter, and Gallagher Re intermediate between cedants and reinsurers. The market is dominated by large global reinsurers such as Munich Re, Swiss Re, Hannover Re, and SCOR, but alternative capital from pension funds and hedge funds has become increasingly important.