Identify three reasons why significant primary insurer’s growth can create a need for reinsurance.
(1) From the view of capacity. If the growth plan is aggressive, the increase of liabilities will reduce the policyholder’s surplus. Because both capacities are subject to constrained regulations with respect to policyholder’s surplus, premium capacity and large-line capacity will reduce at the same time. To surplus relief， the primary insurer will increase the need for reinsurance. (2) From the view of business. With the primary insurer’s growth, risks accumulate greatly when primary insurers write large volume of business for growth, so they need reinsurance to stabilize accumulation of losses and help spreading risks.
(3) From the view of loan. If primary insurer wants to achieve growth, they always need more loan from bank. Reinsurance will increase the credit of primary insurer, which helps them loan more easily.