Salve, Patrick; Simpson, Douglas --- "Alternative Risk Transfer: Risk Transfer Solutions at the Margins of Insurability – The Legal and Regulatory Challenges" [2012] ELECD 175; in Burling, Julian; Lazarus, Kevin (eds), "Research Handbook on International Insurance Law and Regulation" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on International Insurance Law and Regulation

Editor(s): Burling, Julian; Lazarus, Kevin

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849807883

Section: Chapter 21

Section Title: Alternative Risk Transfer: Risk Transfer Solutions at the Margins of Insurability – The Legal and Regulatory Challenges

Author(s): Salve, Patrick; Simpson, Douglas

Number of pages: 25

Extract:

21 Alternative risk transfer: risk transfer solutions at
the margins of insurability ­ the legal and regulatory
challenges
Patrick Salve and Douglas Simpson



1. INTRODUCTION
For much of the twentieth century the principal instrument of transferring risk was the
conventional insurance contract with a conventional insurer. In the typical transaction
one of the parties, the insured, pays a sum of money, the premium, to the other, the
insurer, as compensation for the transfer of identified risk of a specified possible
occurrence. If the specified possible occurrence actually occurs, the insurer becomes
obligated to compensate the insured for the monetary loss caused by that occurrence.
Insurance companies engage in numerous such transactions in order to take advantage
of the law of large numbers so as to assure that although the risk so transferred may
actually result in loss with respect to a small number of insureds, such losses will not occur
with respect to most within the larger universe of insureds. The premiums and the
earnings generated by the accumulation of all such premiums will, in a healthy market, be
sufficient to pay the losses with enough money left over to generate a profit for the insurer.
This system worked well for much of the century, but as the economies of the world
developed and matured and as the asset bases of businesses and individuals grew
correspondingly, risks became more complex and potential losses became larger. This
caused two major developments in the insurance marketplace.
Insurance companies have, in some cases, concluded ...