Hi, In Chapter 24 , page 11 , section 2.3 suggested that " cost of reinsurance capital compare with the cost of an insurer's capital or alternative forms of capital" . I am confused about what is "cost of reinsurance capital" meaning here, is that mean premium of reinsurance cover compared to cost of insurer's capital (as without reinsurance, insurer may need to raise more capital to back future uncertainty ) ? thank you
Purchasing reinsurance is an alternative to holding capital. Buying reinsurance reduces your capital requirements. You need to compare the cost of the reinsurance with the reduction in your capital requirements.
