cost reduction through reinsurance

[uktous]

Hi,

"For example, a reinsurer may have a lower supervisory capital requirement for certain kinds of business than a direct writer.
This means that the reinsurer can write the business more cheaply than the insurer can, so it may be able to pass on some profits by offering more favourable terms for its reinsurance.”

The above sentences are in ST2 coursenote.

I am confused.
According to the underlined word, the coursenote suggests that reinsurer will write business.
However, it should be the insurer to write new business.

Why the coursenote say reinsurer write new business?

thanks

 

[b_colgan]

It's difficult to comment without seeing the whole paragraph.

I guess what it means to say is the reinsurer can offer reinsurance cheaper than a direct writer can offer insurance on the product because they have a lower capital requirement. Cheaper reinsurance, or cheap reinsurance, will encourage a direct writer to either buy more reinsurance than it normally would or offer a product that it might not have done if reinsurance wasn't as cheap.

You're right that a reinsurer doesn't write new business in the same sense as a direct writer. A reinsurer writes business through the reinsurance treaty the direct writer enters into.

 

[cjno1]

I read it slightly differently:

"the reinsurer can write the business more cheaply than the insurer can"

I read this part of the sentence to mean that IF the reinsurer was to write the business, it would be able to do it with lower capital requirements than the insurer can i.e. it doesn't actually do it. So the reinsurer doesn't write new business, but it can insure the same risks at lower cost.

I could still be wrong though . . .