The God Clause and the Reinsurance Industry (Bloomberg)

Reinsurers, insurance for insurers, are on the hook for all the risks that stretch the limits of imagination—the “God clause.” After Hurricane Andrew in 1992, eight new reinsurers entered the market. Another eight joined the market after September 11, and five more after Hurricanes Katrina, Rita and Wilma. The loss after September 11 for Munich Re, the world’s largest reinsurer, came to $2.2 billion. Before then, terrorism was not considered significant to be excluded.  Since the 1970s, losses have been increasing exponentially, according to an annual report on catastrophe losses by Swiss Re. Each year, the God Clause gets shorter because reinsurers write more risks out of their treaties. Each catastrophe is a humble reminder that there is no limit to the stretch of the imagination.