Exposure From Reinsurance Dependency

We all rely on insurance to protect us, but sometimes the companies that provide that insurance rely heavily on other companies, called reinsurers, to cover their own risks. This is called reinsurance dependency. It’s like a chain reaction of protection. But what happens when that chain gets too long or too weak? This article looks at the exposure that comes from this reinsurance dependency, how it affects insurance companies, and what can be done about it.

Key Takeaways

Understanding reinsurance dependency exposure means looking at how much primary insurers rely on reinsurers for risk management, the types of deals they have, and how it affects their ability to take on new business.
Financial impacts are significant; too much reliance can mess with an insurer’s financial health, make insurance more expensive, and change how they decide what risks to accept.
Operationally, reinsurance dependency can shape underwriting rules, pricing, and how insurers look at their past claims, sometimes limiting their flexibility.
Strategically, insurers need to balance how much risk they keep versus transfer, considering how market ups and downs affect reinsurance availability for long-term stability.
Mitigating this exposure involves finding other ways to transfer risk, getting better at their own underwriting, and exploring different ways to finance potential losses.

Understanding Reinsurance Dependency Exposure

When an insurance company relies heavily on reinsurance, it’s basically handing off a big chunk of its risk to another company. This isn’t necessarily a bad thing; it’s how many insurers can take on larger policies or protect themselves from really huge, unexpected losses. But, this reliance creates its own set of exposures that need careful watching.

The Role of Reinsurance in Risk Management

Reinsurance is like an insurance policy for insurance companies. It allows primary insurers to transfer some of the risk they’ve taken on to a reinsurer. This is super important for managing big, unpredictable events, like a massive hurricane or a widespread cyberattack. Without it, an insurer might not have enough money to pay out all the claims after a major disaster. It also helps them write policies with higher limits than they could handle on their own. Think of it as a safety net that lets them operate with more confidence and capacity. It’s a key tool for stabilizing their financial situation and making sure they can keep paying claims, even when things get rough.

Types of Reinsurance Arrangements

There are a couple of main ways insurers use reinsurance. You’ve got treaty reinsurance, which is like a standing agreement where the reinsurer automatically covers a whole portfolio of risks that fit certain criteria. Then there’s facultative reinsurance, which is used for individual, specific risks that might be too large or unusual for a standard treaty. Each type has its own pros and cons depending on what the primary insurer needs to cover. It’s all about finding the right fit for the specific risks they’re trying to manage.

Impact on Primary Insurer Capacity

Basically, reinsurance gives primary insurers the ability to take on more business. By offloading some of the risk, they free up their own capital. This means they can write more policies, offer higher coverage limits, and generally expand their operations without taking on an unmanageable amount of risk themselves. It’s a way to increase their underwriting capacity, allowing them to serve a broader market and handle larger, more complex risks that might otherwise be out of reach. This expanded capacity is a direct benefit of having a solid reinsurance program in place.

Financial Implications of Reinsurance Reliance

Relying heavily on reinsurance can really shake up an insurer’s finances in ways you might not immediately think about. It’s not just about paying premiums; it’s about how that reliance affects your bottom line, your ability to handle unexpected events, and even how you price your own products.

Impact on Solvency and Capital Adequacy

When an insurer cedes a lot of risk to reinsurers, it can seem like a good way to protect its capital. By transferring potential losses, the insurer might need less capital set aside to cover those risks, at least on paper. This can make the company look more solvent and meet regulatory capital requirements more easily. However, this is a bit of a double-edged sword. If the reinsurer itself runs into financial trouble, that protection can disappear overnight. Suddenly, the primary insurer is on the hook for losses it thought were covered. This is why understanding the financial health of your reinsurers is just as important as managing your own capital. It’s a bit like having a safety net, but you need to make sure the net itself is strong.

Reduced Capital Requirements: Ceding risk can lower the amount of capital an insurer needs to hold, potentially freeing up funds for other investments or operations.
Counterparty Risk: The financial stability of the reinsurer becomes a critical factor. If the reinsurer fails, the primary insurer may have to cover the ceded losses itself.
Rating Agency Scrutiny: Rating agencies look closely at reinsurance arrangements. Over-reliance on a single or financially weak reinsurer can negatively impact an insurer’s financial strength rating.
Impact on Solvency Ratios: While reinsurance can support solvency ratios, a sudden withdrawal of reinsurance capacity or a reinsurer’s default can severely impair them.

The interplay between reinsurance and capital adequacy is complex. While it offers a mechanism to manage volatility, it introduces a new layer of financial risk that must be diligently managed.

Reinsurance Cost and Availability

Reinsurance isn’t free, and its cost can fluctuate significantly. Market conditions, such as the frequency and severity of major catastrophes, or even changes in the overall economic climate, can drive up reinsurance premiums. When reinsurance becomes more expensive, it directly impacts the primary insurer’s profitability. Insurers might have to absorb these higher costs, reducing their profit margins, or pass them on to policyholders through higher premiums. The availability of reinsurance can also be a problem. In ‘hard’ market cycles, reinsurers might pull back capacity or become very selective, making it difficult or impossible for primary insurers to secure the coverage they need, especially for certain types of risks. This can force insurers to retain more risk than they are comfortable with, impacting their underwriting capacity.

Influence on Underwriting Decisions

Reinsurance arrangements often come with specific terms and conditions that can influence how a primary insurer underwrites its business. For instance, a reinsurer might require the primary insurer to adhere to certain underwriting guidelines, set specific retention levels for particular risks, or even have a say in the pricing of certain policies. This is particularly true for facultative reinsurance, where individual risks are reinsured. If a reinsurer is unwilling to cover a certain type of risk or wants stricter controls, the primary insurer might have to adjust its own underwriting appetite. This can limit the insurer’s ability to compete in certain markets or serve specific customer segments. It’s a constant balancing act between what the market demands and what the reinsurance partners are willing to support. The proximate cause analysis in claims can also be influenced by reinsurance, as the original policy’s terms and conditions, which are often shaped by reinsurance needs, come into play.

Operational Effects of Reinsurance Dependency

When an insurer relies heavily on reinsurance, it can really change how the day-to-day operations run. It’s not just about the big financial picture; it affects the nitty-gritty of how the company functions.

Underwriting Guidelines and Reinsurance

Reinsurance arrangements often dictate the terms and conditions that primary insurers must adhere to. This means that the guidelines underwriters use to decide whether to accept a risk, and on what terms, are not solely based on the insurer’s own risk appetite or market strategy. Instead, they are heavily influenced by what the reinsurer is willing to cover. For instance, a reinsurer might impose specific exclusions or require certain risk control measures to be in place before they agree to take on a portion of the risk. This can limit the primary insurer’s flexibility in tailoring policies to unique client needs or entering niche markets.

Reinsurer’s appetite directly shapes the primary insurer’s underwriting appetite.
Specific clauses in reinsurance treaties might mandate minimum deductibles or maximum policy limits.
Underwriters may need to seek approval from their reinsurer for risks that fall outside standard treaty parameters.
The need to comply with reinsurance terms can add an extra layer of complexity to the underwriting process, potentially slowing down policy issuance.

The reliance on reinsurance can inadvertently lead to a standardization of underwriting practices, as insurers aim to present a portfolio that aligns with their reinsurers’ expectations. This can stifle innovation and make it harder to adapt to rapidly changing risk landscapes.

Pricing Strategies and Reinsurance

The cost of reinsurance is a significant factor in an insurer’s overall pricing strategy. Premiums charged to policyholders must account for the cost of transferring risk to reinsurers. If reinsurance becomes more expensive, primary insurers will likely need to increase their own premiums to maintain profitability. This can make their products less competitive in the market. Furthermore, the availability and cost of reinsurance can influence how insurers price different types of risks. Risks that are more expensive to reinsure might be priced higher, or the insurer might choose to retain more of that risk themselves if the reinsurance cost is prohibitive.

Here’s a look at how reinsurance costs can impact pricing:

Reinsurance Cost	Impact on Primary Premium	Competitiveness
Increased	Higher	Reduced
Decreased	Lower	Increased
Volatile	Less Predictable	Uncertain

Loss Experience Analysis and Reinsurance

How an insurer analyzes its loss experience is also tied to its reinsurance arrangements. Reinsurers often require detailed reporting on claims and loss trends. This means the primary insurer must have robust systems in place to track and report this information accurately. The performance of the reinsured portfolio directly impacts the cost and availability of reinsurance in the future. A history of poor loss experience can lead to higher reinsurance premiums or even a refusal by reinsurers to offer coverage, forcing the primary insurer to either absorb more risk or exit certain lines of business. This feedback loop means that meticulous loss analysis is not just an internal exercise but a critical component of maintaining reinsurance relationships and managing future capacity. This can also affect market conduct examinations if claims handling processes are not aligned with regulatory expectations due to reinsurance requirements.

Detailed loss data is essential for reinsurance renewals.
Reinsurers may impose specific loss control requirements based on analysis.
A pattern of large or frequent losses can trigger reviews of underwriting and pricing by reinsurers.
The analysis of interconnected claims becomes even more important when reporting to reinsurers.

Strategic Considerations for Reinsurance Dependency

Relying too heavily on reinsurance can tie an insurer’s hands in more ways than one. It’s not just about the cost, though that’s a big part of it. You’ve got to think about how much control you’re giving up over your own business. When you’re constantly looking over your shoulder to see what your reinsurer will accept, it changes how you operate.

Balancing Risk Transfer and Retention

Deciding how much risk to keep for yourself versus how much to pass on is a constant balancing act. Keeping more risk means you keep more of the premium, which can be great when things go well. But it also means you’re on the hook for bigger losses if things go south. On the flip side, transferring too much risk means you might miss out on profitable opportunities and become overly dependent on others for your capacity. It’s like walking a tightrope – you need to find that sweet spot where you’re protected but still in control.

Assess your risk appetite: How much volatility can your company stomach?
Analyze potential returns: What’s the upside of retaining more risk?
Evaluate capital requirements: Do you have the financial muscle to back up higher retentions?
Consider market conditions: Is reinsurance cheap and plentiful, or expensive and scarce?

The decision to retain or transfer risk isn’t static. It needs regular review based on your company’s financial health, the current market, and your long-term goals. Over-reliance on reinsurance can stifle growth and innovation.

Market Cycles and Reinsurance Availability

Reinsurance markets go through cycles, kind of like the weather. Sometimes it’s a ‘soft’ market where capacity is abundant and prices are low. This makes it easy and cheap to buy reinsurance. Then, things can shift to a ‘hard’ market, where capacity dries up, and prices skyrocket. If your company has become accustomed to easy reinsurance in a soft market, a sudden shift to a hard market can be a real shock. Suddenly, the capacity you relied on might be unavailable or prohibitively expensive, forcing you to scale back your operations or take on risks you’d rather not.

Hard Market Impacts:
- Reduced underwriting capacity
- Increased cost of reinsurance
- Stricter terms and conditions
- Potential for withdrawal from certain lines of business
Soft Market Opportunities:
- Expand market share
- Increase policy limits
- Explore new product lines
- Build capital reserves

It’s important to plan for these shifts. Building strong relationships with multiple reinsurers can help, as can developing a strategy for managing capacity during hard market periods. You don’t want to be caught flat-footed when the market turns.

Long-Term Sustainability of Reinsurance Strategies

Thinking about the long haul is key. A reinsurance strategy that works today might not work in five or ten years. You need to consider how your current reliance on reinsurance fits into your company’s overall vision for growth and stability. Are you building a business that can stand on its own, or are you creating a dependency that could become a problem down the road? Sustainable strategies often involve a gradual increase in retention as the primary insurer’s financial strength and underwriting capabilities grow. This approach allows for controlled growth and reduces vulnerability to external market shocks. It’s about building resilience, not just transferring risk. You might want to look into alternative risk financing options to diversify your approach.

Key questions for long-term sustainability:
- Does the strategy support profitable growth?
- Does it align with our risk appetite and capital position?
- How will it perform in different market cycles?
- Does it allow for the development of internal expertise?
- Are we building a sustainable competitive advantage?

Regulatory Landscape and Reinsurance

The insurance industry, including how reinsurance is used, is pretty heavily regulated. It’s not just a free-for-all. Regulators are involved to make sure things are fair and that insurers actually have the money to pay out claims when they’re supposed to. This oversight impacts everything from how insurers set up their reinsurance deals to how they report their financial health.

Solvency Monitoring and Reinsurance

Regulators keep a close eye on an insurer’s financial strength, and reinsurance plays a big part in that picture. They want to see that an insurer isn’t taking on more risk than it can handle, even after passing some of that risk along to reinsurers. This means looking at capital adequacy – basically, how much money the insurer has set aside to cover unexpected losses. Reinsurance arrangements are a key factor in these calculations. If an insurer relies too heavily on reinsurance, regulators might see that as a potential weakness, especially if the reinsurer itself is shaky or if reinsurance capacity suddenly dries up. They use models like risk-based capital to make sure insurers hold enough capital relative to the risks they’re still on the hook for. Regular financial checks and reports are standard practice to catch any warning signs early.

Capital Adequacy: Insurers must maintain sufficient capital to absorb potential losses.
Reserve Requirements: Funds must be set aside for future claims.
Reinsurance Impact: How reinsurance affects the insurer’s net retained risk is scrutinized.
Financial Examinations: Regular audits by regulators assess financial health.

Regulators are tasked with protecting policyholders. This means they need to be sure that an insurance company has the financial backing to pay claims, not just today, but also in the future, even if a major disaster strikes. Reinsurance is a tool for managing that risk, but it’s not a magic bullet. Regulators look at the whole picture to gauge true financial stability.

Regulatory Requirements for Reinsurance

There are specific rules about how insurers can use reinsurance. For starters, regulators often require that reinsurance contracts be properly documented and clearly outline the terms of the risk transfer. They also want to know who the reinsurers are and assess their financial stability. This is because if a reinsurer can’t pay, the original insurer is still on the hook for the full amount. Some jurisdictions might have rules about the types of reinsurance an insurer can use or limits on how much risk can be ceded. It’s all about making sure the risk transfer is genuine and that the insurer isn’t just shifting problems around without a solid plan. Understanding how regulatory complaints escalate can be important for insurers to manage their compliance efforts effectively.

Impact on Consumer Protection

Ultimately, all these regulations tie back to protecting the people who buy insurance. If an insurer becomes insolvent, it’s the policyholders who suffer. By monitoring solvency and requiring insurers to manage their risks prudently, including through appropriate reinsurance, regulators aim to prevent such situations. They also look at market conduct to ensure that insurers aren’t engaging in unfair practices, which can be indirectly influenced by reinsurance dependency. For example, if an insurer is overly reliant on reinsurance and faces capacity issues, it might lead to unfair claim denials or delays, which regulators watch closely. The goal is a stable insurance market where consumers can trust that their coverage is sound and claims will be handled fairly. State-based regulation is the primary method for overseeing these consumer protections, though federal laws also play a role in specific areas like data privacy [5d7c].

Mitigating Reinsurance Dependency Exposure

Relying too heavily on reinsurance can create its own set of problems, so it’s smart to think about ways to lessen that dependence. It’s not about cutting reinsurance out completely, but about finding a better balance.

Diversifying Risk Transfer Options

Instead of putting all your eggs in the reinsurance basket, look around for other ways to move risk. This could mean exploring different types of reinsurance treaties or even looking into alternative risk transfer mechanisms. Sometimes, working with a group of insurers to form a captive insurance company can be a good move. This allows you to retain more risk internally while still having a safety net. It’s about spreading your risk transfer bets around.

Explore different reinsurance structures: Consider facultative reinsurance for specific large risks alongside your treaty arrangements.
Investigate alternative risk transfer (ART) solutions: This can include financial instruments like catastrophe bonds or insurance-linked securities.
Consider forming or participating in a captive insurer: This provides a dedicated risk financing vehicle.

Enhancing Primary Underwriting Capabilities

Getting better at your core job – underwriting – is a big step. If your primary underwriting is solid, you won’t need to pass off as much risk. This means really digging into the risks you’re taking on, making sure your guidelines are sharp, and your pricing accurately reflects the risk. Strong primary underwriting reduces the need for excessive reinsurance reliance. It’s about building a more robust foundation for your own business.

Invest in training for your underwriting staff to improve their risk assessment skills.
Regularly review and update underwriting guidelines to reflect current market conditions and emerging risks.
Implement advanced analytics to better understand and price individual risks.

Building internal underwriting strength means you’re not as vulnerable when reinsurance markets get tough or prices go up. It gives you more control over your own destiny.

Developing Alternative Risk Financing

This goes hand-in-hand with diversifying risk transfer. Think about other ways to pay for potential losses besides just buying more reinsurance. This could involve setting up dedicated funds for specific types of risks or working with policyholders to share some of the risk burden. For example, adjusting deductibles or policy terms can shift a portion of the risk back to the insured, which can be a form of alternative financing. It’s about being creative with how you manage your financial exposure to losses, rather than just relying on external insurance markets. This approach can lead to more stable pricing over the long term and a better understanding of your actual risk profile. You might even look into risk retention groups as another avenue.

Emerging Trends in Reinsurance Dependency

The reinsurance market is always shifting, and staying on top of what’s new is pretty important if you rely on it. It’s not just about the old ways anymore; new challenges and opportunities are popping up all the time.

Climate Change and Reinsurance Capacity

Climate change is a big one. We’re seeing more extreme weather events, and that means more claims. This puts a strain on how much reinsurance capacity is available and how much it costs. Insurers are having to rethink how they price policies and manage risks, especially for things like floods and wildfires. It’s getting harder to predict losses when the weather is so unpredictable. This increased volatility directly impacts the stability of reinsurance markets.

Technological Advancements in Risk Transfer

Technology is changing things fast. Think about things like telematics in cars, which lets insurers track driving habits and adjust premiums. Or parametric insurance, which pays out automatically when a specific event happens, like an earthquake of a certain magnitude. These new approaches can offer more tailored coverage and faster payouts, but they also require new ways of looking at data and managing risk. It’s a whole new ballgame compared to traditional insurance models.

Evolving Regulatory Frameworks

Regulators are also keeping pace with these changes. They’re looking closely at how insurers use data, especially with new technologies like AI and machine learning. There’s a growing focus on making sure these systems are fair, transparent, and don’t discriminate. Plus, with more companies operating globally, there’s a push for more international cooperation on how insurance and reinsurance are overseen. It means insurers need to be extra careful about compliance and how they explain their decisions.

Here’s a quick look at how these trends might affect reinsurance:

Increased demand for specialized reinsurance: As risks become more complex (like cyber threats or climate events), insurers will need reinsurers who can handle these specific exposures.
Data analytics and AI integration: Reinsurers are using advanced analytics to better understand and price risks, which could lead to more accurate pricing but also potential concerns about algorithmic bias.
Focus on operational resilience: Regulators are increasingly concerned about an insurer’s ability to withstand disruptions, including those affecting their reinsurance partners.

The interplay between climate events, technological innovation, and regulatory adjustments is creating a dynamic environment for reinsurance. Insurers must remain agile, adapting their strategies to secure adequate and affordable risk transfer solutions in this evolving landscape.

Assessing Reinsurance Dependency Exposure

Figuring out just how much a company relies on reinsurance isn’t always straightforward. It’s more than just looking at the big numbers; you’ve got to dig into the details to see where the real exposures lie. This section breaks down how to get a handle on that dependency.

Quantifying Reinsurance Reliance

To really understand your reinsurance dependency, you need to put some numbers to it. This means looking at how much of your potential losses are actually covered by reinsurance and how much of your premium income goes towards paying for that coverage. It’s about getting a clear picture of the financial flow.

Premium Ceded: This is the portion of your earned premiums that you pay to reinsurers. A high percentage here can signal a significant reliance.
Incurred Losses Reinsured: This shows how much of your actual claims payouts are being picked up by reinsurers. A large portion means reinsurers are absorbing a big chunk of your loss experience.
Capacity Provided: How much of your total underwriting capacity is directly enabled by reinsurance? Without it, could you write the same volume of business?

Here’s a simplified way to look at it:

Metric	Calculation	Interpretation
Reinsurance Reliance Ratio	(Premiums Ceded / Earned Premiums) * 100	Higher percentage indicates greater reliance on reinsurance for premium income.
Loss Absorption Ratio	(Losses Reinsured / Incurred Losses) * 100	Higher percentage shows reinsurers are covering a larger share of claims.
Capacity Support Percentage	(Reinsurance Capacity / Total Underwriting Capacity) * 100	Indicates how much of your business volume is dependent on reinsurance support.

It’s important to remember that these ratios are just starting points. A high ratio isn’t automatically bad; it depends on the insurer’s strategy, risk appetite, and the specific market conditions. The key is understanding why the numbers are what they are.

Identifying Concentration Risks

Beyond just the amount of reinsurance, you need to look at who you’re relying on and what risks they’re covering. Relying too heavily on a single reinsurer, or a small group, can create a concentration risk. If one of those reinsurers faces financial trouble, it could leave you exposed.

Reinsurer Counterparty Risk: Assess the financial strength and stability of your key reinsurers. Are they rated well? Do they have a solid track record?
Portfolio Concentration: Are your reinsurers concentrated in specific lines of business or geographic areas? This could amplify losses if a particular sector or region experiences a downturn.
Contractual Terms: Review the terms and conditions of your reinsurance contracts. Are there any clauses that could limit coverage unexpectedly or give the reinsurer an easy out?

Scenario Analysis for Reinsurance Dependency

What happens if your reinsurance arrangements change? Running through different scenarios can highlight potential vulnerabilities. This involves stress-testing your current setup.

Reinsurance Withdrawal: What if a major reinsurer decides not to renew your contract, or significantly reduces capacity? How would you replace that coverage, and at what cost?
Increased Reinsurance Costs: Imagine reinsurance premiums jump significantly. How would that impact your profitability and your ability to price competitively?
Coverage Changes: What if reinsurers start adding more exclusions or tightening terms? How would that affect the risks you can underwrite and the policies you can offer?

Thinking through these ‘what-ifs’ helps you prepare for potential disruptions and develop contingency plans. It’s about being proactive rather than reactive when it comes to your reinsurance partnerships. Understanding your reinsurance arrangements is a big part of this process.

Looking Ahead

So, relying too much on reinsurance can really change how an insurance company operates. It’s like having a safety net, but if you always expect it to catch you, you might not be as careful about where you step. This dependency can affect how they price things, what risks they’re willing to take on, and even how they handle claims. While reinsurance is a smart tool for managing big risks and keeping things stable, it’s important for insurers to remember their own core responsibilities. Finding that right balance between using reinsurance and maintaining their own solid underwriting and risk management practices is key to staying strong and reliable in the long run.

Frequently Asked Questions

What does it mean for an insurance company to be ‘dependent’ on reinsurance?

When an insurance company relies heavily on reinsurance, it means they’re passing on a big chunk of the risk they take on to other, larger insurance companies. It’s like a smaller store relying on a big warehouse to hold most of its inventory. This helps the smaller company manage its own risks and offer coverage it might not be able to handle alone.

Why do insurance companies use reinsurance?

Insurance companies use reinsurance for a few key reasons. It helps them handle really big claims, like those from major natural disasters, without going broke. It also allows them to offer more insurance coverage than they could afford to cover themselves, which helps them grow their business and serve more customers.

What are the risks if an insurance company depends too much on reinsurance?

If an insurance company relies too much on reinsurance, they could be in trouble if the reinsurers decide to stop offering coverage or charge much higher prices. This is especially risky during big disaster years when many companies need reinsurance at the same time. It can also limit how much control the original insurer has over how claims are handled.

How does reinsurance affect the price of insurance for customers?

While customers don’t usually deal directly with reinsurers, the cost of reinsurance can affect their insurance prices. If reinsurance becomes more expensive for the insurance company, they might have to charge policyholders more to make up for it. This is especially true when there’s a lot of risk in the market, like after a major hurricane season.

Can an insurance company lose its ability to operate if its reinsurers pull out?

Yes, it’s possible. If a company relies heavily on reinsurance and those reinsurers suddenly stop providing coverage, the company might not have enough money or capacity to cover its own policyholders’ claims. This could lead to financial problems, and in some cases, even force the company to stop operating.

What’s the difference between treaty and facultative reinsurance?

Think of treaty reinsurance like a standing agreement where the reinsurer automatically accepts a whole category of risks from the insurer, like all their home insurance policies in a certain area. Facultative reinsurance is more like a one-off deal, where the insurer asks the reinsurer to cover a specific, individual risk, like a very large or unusual building.

How do new risks, like climate change, affect reinsurance dependency?

Climate change is making natural disasters like hurricanes and wildfires happen more often and be more severe. This means insurance companies are facing bigger losses. Because of this, reinsurers might have less capacity or charge much higher prices, making it harder and more expensive for insurance companies to get the reinsurance they need. This increases their dependency challenges.

What can insurance companies do to reduce their reliance on reinsurance?

Companies can try to reduce their dependence by becoming better at managing risks themselves. This includes improving their own underwriting (deciding who to insure and at what price), keeping more of the risk on their own books (called retention), and exploring other ways to finance potential losses, like setting up their own special insurance funds (called captives).