I think I understand the difference between a reinsurance pool and a syndicate, but what’s the difference between a reinsurance pool and a reinsurance association?
Off the top of my head, the first association I could think of was the RAA. They are a trade association. Their main functions are legislative and lobbying efforts on behalf of their industry members, and publishing some aggregated data.
I WANNA KNOW THE FINE DIFFERENCE
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I think one difference between the two might relate to how the group addresses “short fall”.
For example, IIRC, a pool can assess members for the shortfall of past events.
For example, suppose the pool collected $10M to cover the costs but find they’ve incurred $12M is losses.
A pool could assess its members a share of that $2M shortfall; but the association has to “eat” it, so to speak.
Similarly, suppose $10M was collected, but only needed to pay out $8M in losses. The pool as to return the $2M to its members while the association can place that in a surplus fund to help cover the prior event when it happens.
I’m not familiar with an association in the wild, but the way the text reads, it sounds like the primary difference is that the pool has a blanket agreement for an entire book of business, whereas the association applies reinsurance on a policy-by-policy basis, with the potential to vary terms for individual policies that have particularly hazardous risk characteristics.
Pool = “company A takes X% of all the commercial lines risk; company B takes Y%…”
Association = “company A takes X% of the risk from policy 12345; company B takes Y%”…repeat a bunch of times, but X/Y/… might vary for some policies.
…but this is all a guess on my part from the textbook description.
I interpret the text book definition to mean the difference lies in who takes the credit risk in case a member company is unable to pay. In a pool, the member that wrote the policy takes the risk that the reinsurance ceded to a co-member may not be collectable.
In an association, it seems the credit risk of uncollectable loss payments is shifted to the policy buyer.
The association is full of Karen’s. If you’re going to the pool don’t forget to bring a towel.
An example of a UK-based reinsurance pool
They reinsure against terrorism risk.
So if anyone can help me find the world’s longest (NOT LONGEST-LASTING) light bulb, that would be great, thanks. Even Google is getting tripped up by this one.
Are you looking to reinsure the risk of it breaking or what?
Your mom can fit in a reinsurance association.
Another reinsurance pool arrangement would be regarding nuclear power plants.
Must be a few CAS papers somewhere regarding how pooled terrorism risk is reinsured, as well as nuclear power plants.
Checked my GI notes from years ago.