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Insurance Insights : Strengthening Global Resilience: How Reinsurance Acts as a Shock Absorber and Business Enabler

Reinsurance is a cornerstone of the insurance industry, offering a safety net for primary insurers and playing a vital role in global risk management. By allowing insurers to transfer portions of their risk to reinsurers, the reinsurance industry contributes significantly to financial stability and resilience and drives progress and innovation within and beyond the insurance sector.

What is reinsurance?

Reinsurance is commonly known as “insurance for insurance companies”. More specifically it refers to a direct insurer (the “ceding company”) transferring part of the risks it assumes on behalf of the policyholders to another insurer (the “reinsurer”).

Unlike direct insurance, reinsurance does not deal with individual policyholders but operates at the level of insurance portfolios. This requires advanced modeling and a deep understanding of systemic risk.

From early beginnings to modern reinsurance

  • XIVᵉ century

    Reinsurance has a fascinating history that dates back several centuries. The earliest known forms of reinsurance can be traced to the 14th century in Genoa, Italy, where marine insurers began to share risks with other parties to protect themselves from catastrophic losses at sea.

  • 1842 – 1846

     

    Modern reinsurance, as a structured and regulated industry, began to take shape in the 19th century. The fire that ravaged the German city of Hamburg in 1842 prompted the creation of the first professional reinsurance company, Kölnische Rückversicherungs-Gesellschaft, in 1846 in Germany. The considerable amount of damage far exceeded the resources of the local insurer, and thus helped establish the idea that risks associated with insurance portfolios should be shared among multiple insurers.

  • 1863 – 1880

    Other professional reinsurers emerged thereafter, notably the Schweizerische Rückversicherungs-Gesellschaft (Swiss Re) in 1863 and the Münchener Rückversicherungs-Gesellschaft in 1880, which are among today’s leading reinsurers worldwide. This marked a significant turning point, as reinsurance evolved from informal arrangements into a formalized business model with contracts, underwriting standards and international reach.

  • Since the XIXᵉ century

    Since then, the industry has grown into a global network of reinsurers, brokers, and alternative capital providers (insurance-linked securities,..), playing a vital role in closing protection gaps and making the world more resilient, stabilizing financial markets, enabling risk transfer across borders and, in fine, providing the backbone to economic growth.

    At full-year 2024, global reinsurance dedicated capital totaled USD 600 billion.

    Graph 1: Reinsurance dedicated capital (USD billion)

    Sources : AM Best data and research, Guy Carpenter

  • 1984

    Luxembourg established a dedicated legal framework for reinsurance companies in 1984, laying the foundation for a favorable environment for setting-up captive reinsurance entities. Captives, typically owned by large corporate groups, are designed to reinsure specific risks faced by the groups’ subsidiaries and thus address their self-insurance needs. In addition to the captive reinsurers, a number of professional reinsurers also have chosen Luxembourg as their base.

  • Today

    Today, the country’s reinsurance sector comprises nearly 200 entities, reflecting its continued attractiveness and robust regulatory environment.R

The importance of reinsurance in risk management

Reinsurance serves as a crucial risk management tool for insurance companies.

By allowing insurance companies to transfer some of their risks to a reinsurer, reinsurance reduces their net risk exposure, protecting them from accumulated liabilities and helping them handle financial exposure to major events.

As such, reinsurance is unlocking financial underwriting capacity and enabling primary insurers to accept more risk than they would be able to carry alone. The financial arrangement helps insurers to manage large-scale risks and stabilize their balance sheets following major claims and thus fulfill their obligations to policyholders without overwhelming their financial resources.

This risk-sharing mechanism is therefore particularly crucial in the context of peak risks from perils like earthquakes or hurricanes that could drive insured losses to USD 300 billion in a year according to Swiss Re Institute’s latest sigma report on natural catastrophes. Reinsurance plays a critical role as a shock absorber of peak loss year volatility and is expected to cover more than half of all above-trend global losses. With global traditional reinsurance capital currently estimated to be around USD 500 billion, and leading reinsurers having an average solvency ratio of around 250%, the reinsurance market would remain well capitalised, even after covering its share of a USD 300 billion loss.

Reinsurance plays a significant role in maintaining equilibrium within the insurance market and the significance of reinsurance as a shock absorber and a business enabler cannot be overstated. By transferring risks to reinsurers, primary insurers can effectively:

  • Mitigate Risks: Reinsurance acts as a buffer, protecting primary insurers from substantial losses. This is particularly vital during catastrophic events when claims can surpass expectations.
  • Stabilize Earnings: Reinsurance smoothens the volatility associated with claim experiences, leading to more predictable financial outcomes for insurers.
  • Enhance Capital Efficiency: Insurers can deploy their capital more effectively by transferring risks, thus enabling them to underwrite additional policies without compromising their financial standing.

These advantages showcase reinsurance as an indispensable component of a resilient insurance market that adapts to ever-increasing risks.

A global business by nature

Reinsurance is an inherently global business because it thrives on geographic diversification, international capital flows, cross-border contracts, and global collaboration all backed by global regulatory frameworks. This global scope enhances the industry’s ability to respond to large-scale and systemic risks.

Diversification across borders and lines of business

Reinsurers actively diversify their portfolios across regions and risk types to reduce exposure to local catastrophes. For instance, a reinsurer may cover earthquake risks in Japan, hurricanes in the U.S., and floods in Europe—balancing its portfolio and minimizing the impact of any single event.

Reinsurance contracts often also span multiple jurisdictions. A primary insurer in Brazil might cede risk to a European reinsurer under a contract governed by English law and denominated in USD. This cross-border complexity demands expertise in international law, tax regimes, and regulatory compliance. Geographic diversification also boosts underwriting capacity and enables reinsurers to respond effectively to global crises such as pandemics, extreme weather and geopolitical conflicts.

Global capital and capacity

Reinsurance requires substantial capital reserves to absorb large losses. To access global capital and spread risk efficiently, reinsurers operate across international markets. Major reinsurance hubs include Zurich, London, Munich or Bermuda, which facilitate global transactions and attract capital from institutional investors worldwide.

The rise of Insurance-Linked Securities (ILS), such as catastrophe bonds, has brought institutional investors—like pension funds and hedge funds—into the reinsurance space. These instruments are traded globally and rely on advanced risk modeling and data analytics, further reinforcing the international nature of reinsurance.

Current trends in reinsurance

The reinsurance industry is constantly evolving, influenced by shifting market dynamics and emerging risks. The following recent trends are shaping the reinsurance sector.

Natural catastrophes

A key risk requiring global diversification is the insurance against natural catastrophes as local economies may not be able to bear the associated large loss burdens alone. Global risk diversification has enabled coverage, on average, of more than 60% of large loss events since 2000. For example, Chile’s 2010 earthquake caused USD 6 billion of insured losses, in a non-life market with annual premiums of USD 3 billion. Similarly, following the exceptional US 2005 hurricane season, 12% of US insurers received reinsurance payments equal to 100% of their equity. 

Graph 2: Claims payments by international re/insurers

Source: Swiss Re Institute, sigma 02/2025

Recent events such as flooding in Dubai, wildfires in California, or severe convective storms in Europe highlight the growing volatility and interconnectedness of risks. Over the past five years, insured losses from natural catastrophes have consistently exceeded USD 100 billion year on year.

Addressing extreme weather risks requires a multi-stakeholder approach, and reinsurers play a pivotal role by promoting awareness, leveraging data analytics and modeling, and providing financial mechanisms to manage and mitigate exposure to rising natural catastrophe risks.

With a growing awareness of extreme weather risks, the reinsurance industry is seeing a heightened demand for innovative solutions fostering environmental resilience. Products like parametric insurance—where payouts are triggered by predefined events rather than traditional claims assessments—are gaining traction, as they accelerate recovery and simplify claims processes.

Building on their long-standing technical expertise in extreme event coverage allows reinsurers to contribute valuable loss data and modeling capabilities, making natural catastrophe risks more measurable and actionable. Collaboration with technology firms is enhancing risk-sharing platforms and real-time data exchange, improving transparency and capital allocation.

Public-private partnerships are also emerging, enabling reinsurers to work with governments to analyze climate data and strengthen preparedness.

Cconomic and geopolitical uncertainty

The global economic environment remains uncertain, with inflationary pressures—both economic and social—impacting loss trends. Geopolitical tensions and financial market volatility also pose risks to reinsurers’ balance sheets, affecting both underwriting and investment performance.

Geopolitical tensions and persistent economic inflation are further complicating risk modeling and decisions regarding capital allocation. Inflation affects claim costs, reserve adequacy, and the pricing of future risks, and geopolitical instability elevates risks for assets, infrastructure, and political violence covers. These issues require reinsurers to adjust portfolios, adjust risk appetites, and leverage real-time data to stay ahead of emerging exposures. 

Exploring the impact of technological innovations on reinsurance 

Technology is reshaping every facet of reinsurance operations, from underwriting to claims management. Artificial intelligence, advanced data analytics, and machine learning models are enabling reinsurers to assess risks with greater precision and speed. Sophisticated catastrophe modeling tools and real-time data feeds now inform underwriting decisions, while predictive analytics help identify emerging trends before they impact portfolios. In claims management, automated systems accelerate processing times and improve accuracy, reducing operational expenses and enhancing the customer experience. Reinsurers leveraging these technologies are better positioned to navigate market volatility, optimize capital deployment, and respond to evolving risk landscapes.

Annick Felten serves as the General Manager of Swiss Re International SE and Swiss Re Europe s.a., Swiss Re’s European reinsurance and commercial insurance carriers headquartered in Luxembourg.

Swiss Re Group is a global leader in reinsurance, insurance, and insurance-based risk transfer, drawing on over 160 years of risk expertise and the dedication of more than 14,000 employees worldwide.

Insight from the Expert

Annick Felten serves as the General Manager of Swiss Re International SE and Swiss Re Europe s.a., Swiss Re’s European reinsurance and commercial insurance carriers headquartered in Luxembourg.

Like many peers, I didn’t choose reinsurance intentionally—I discovered it by chance and stayed for its unique appeal. Reinsurance is a global, relationship-driven industry that blends innovation, analytics, and strategic thinking. It plays a vital role in managing complex risks, from man-made challenges to natural catastrophe risk threats, making it far more than a financial mechanism—it’s a driver of economic growth, innovation, resilience and global stability. If you’re curious about global trends, enjoy analytical problem-solving, and value meaningful collaboration, reinsurance offers a dynamic and rewarding career. Its international scope means engaging with diverse markets and cultures, while roles span data science, underwriting, risk modeling, and client management. Strong communication, analytical skills, and a genuine interest in how the world works are key assets. For those seeking a purpose-driven, intellectually stimulating career with real-world impact, reinsurance may be the hidden gem you didn’t know you were looking for.

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