Hi, I am confused with following content in the material , chapter 22 (page 11) question : why reinsurance might increase liquidity risk ? answer suggested that liquidity risk arise due to delay of receiving RI recoveries , insurer may need to pay the full claim first. liquidity risk will still exist (may be even expose to higher risk ) with no RI at all as degree of mismatch between asset and liability will be greater, why here suggest the liquidity risk will increase ? thank you
The question says liquidity risk might increase. Reasons why it might increase are due to the need to pay reinsurance premiums and/or the delay between paying the gross claims and receiving the reinsurance recoveries.
