Short placements tell us about the additional price margin reinsurers build into their authorizations. Last time, we used oversubscription to measure inefficiency, but we know what many of you who read our analysis were thinking – my broker does a great job and my program always starts as a short placement, particularly in the current hardening market. If this is you, on the surface it sounds like you are getting a great deal.

Oversubscription happens in a reinsurance program when the capacity needs of the buyer – the cedent – are exceeded by the capacity offered by the sellers – the reinsurers. It is a basic economic phenomenon that if a product sold-out while there were still more parties willing to buy it, then alternatively the product’s price could have been raised to the point where it sold-out at the exact moment when all buyers had purchased their fill.