Fall 2019 Q20 d)
If a reinsurer becomes insolvent, I understand how it would reduce capital available and increase insurance risk (as with no reinsurance, our claim liabilities increase)
How would credit risk increase though? I thought if they become insolvent, it theoretically terminates the relationship and you don't have their credit risk anymore (no reinsurance recoverable).
Thanks!
Comments
When you are insolvent, the creditors of the company still have claims to the underlying assets and are able to get back some funds through liquidation. However, given that the company is now insolvent the actual amount that we can claim back from what we are owed becomes highly uncertain