PINS A3.10.1 Guidance

1 An insurer is exposed to the possibility of very large losses arising from its portfolio as a result of exposures to extreme events such as natural catastrophes, man-made disasters and other non-natural perils. While such events occur rarely, their financial impact on an insurer can be significant and can result in insolvency.
2 The insurance concentration risk component is calculated as the insurer's maximum event retention (after taking into account acceptable reinsurance recoveries) plus the cost of 1 reinstatement of those reinsurance arrangements if the reinstatement reinsurance cover has not been pre-paid by the insurer.
3. Specialist insurers, such as providers of medical indemnity, may not necessarily be exposed to large losses due to the aggregation of claims linked to a single catastrophe-type event like a pandemic. However, these insurers may still be exposed to insurance concentration risks and large losses arising from groups of claims relating to a common dependent source. For example, a medical insurer covering thousands of lives through a company scheme may face a large number of claims arising from employees' class action relating to a faulty medical procedure.
Inserted by QFCRA RM/2013-1 (as from 1st January 2015).