Don't have the actual assignment to hand, but would hazard this should mean:
The heavier (more detailed) the underwriting, the less likely the insurance company will take on 'bad' risks (i.e. good underwriting (statistically) should mean that the company has fewer claims). Therefore the quality of the insurer's underwriting process will impact on the terms any reinsurer will sign up to as part of a treaty arrangement (or, the reinsurer is underwriting the insurance company on the grounds of the insurance company's own underwriting process).
Note that for as long as a treaty is in place the reinsurer has to take on the business specified in the treaty contract, so setting bounds in the actual treaty arrangement is how it would protect itself against bad risks taken on by the counterparty.
Hope this fits into the question & answer...
Last edited by a moderator: Jun 30, 2008