What is the typical result when a reinsurer becomes insolvent?

When a reinsurer becomes insolvent, the primary concern for the insurer is the credit risk associated with relying on the reinsurer to fulfill its obligations. In the insurance industry, insurers often transfer portions of their risk to reinsurers to manage exposure and improve their capital position. If the reinsurer becomes insolvent, the insurer may not be able to recover the reinsured amount for claims that it has paid out. This situation creates a significant credit risk for the insurer, as it now holds the full liability for these claims without the expected support from the reinsurer.

In this context, the home insurer bears the financial burden and may have to cover the claims on their own, which could lead to increased solvency concerns for the insurer itself. The risk is primarily about financial exposure rather than a immediate transfer of claims to another reinsurer or outright denial of the claim.

The other options do not fully capture the nuanced implications of a reinsurer's insolvency:

• While the insurer may cover issues related to claims, it is not a guaranteed full payout unless they choose to do so from their own resources.

• Denial of claims primarily does not occur simply due to a reinsurer's insolvency as it depends on the terms of the original policies and the