Hi
I think this answers your question some bit though there may be a bit more involved that i'm not too sure about so maybe someone can add to the below:
Generally insurance companies like to reduce their premiums relative to their free reserves as this increases the solvency ratio of their company. The higher this ratio, the more securer they look, the cheaper it may be to raise capital and they get a higher credit rating etc.
Solvency ratio = free reserves/premium. So the lower the premium the higher the ratio. Using reinsurance, reduces net premiums due to paying for the RI.
I'm sure of the above, but here is where i'm a little iffy:
R/I actually will also reduce total claims so the freeeserves are actually higher due to paying less claims, so liabilities reduce(can someone confirm due to reinsurance, on the claims side, technical reserves will reduce and so free reserves increase - or can you allow for this in the reserves). If so, free reserves increase so both this and the premium effect increase the companies solvency margin.
Leala