Re: Re: "an act of war" & insurance payments

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

Andrew wrote:
> Reinsurance weaves a complex web. An insurance company assumes risks.
> Then the insurer buys insurance to cover their risk. That's
> reinsurance. The reinsurer buys reinsurnace to cover *their* risk. My
> understanding is that many companies are both insurers and reinsurers.
> Often a reinsurer is reinsuring at several different levels.

It's important to remember that all that (re)insurance does is to spread
the risk; it's a form of diversification. It can't abolish _systematic_
risk. If a shock is large enough, the government or the consumers or the
insured or the stock-holders (or partners) of the insurance companies
typically take the hit. The government takes the hit by declaring a
disaster, etc., or by allowing shareholders in limited liability
corporations to avoid paying the full cost.

> Eventually, insurance, a nearly unregulated industry, is reinsured by
> Lloyd's of London, a group of wealthy English royals who back their
> risk with gold and wealth.

Of course, a few years ago, the partners in Lloyd's discovered that they
were partners rather than being share-holders in a limited-liability
corporation. This led to a lot of bankruptcies.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine