re: So what do insurance companies do after catastrophes like we've seen lately?

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Do reinsurance companies buy rereinsurance? And if so, do rereinsurance companies buy rerereinsurance? And if so . . .

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This was a big issue after Hurricane Andrew. When an entire customer base of an insurance company all file at the same time there is no way for the company to cover cost. It therefore falls back onto to major reinsurer- the problem with Andrew was that a couple of major reinsurers couldn’t cover their policies. This was the first time that had happened.

This fallout was that big brother stepped in to help the people. Sounds good right? Well, the unintended consequence was that insurance companies started backing off on their company coverage, because if things are that bad then the government will step in and pay the people for them.