Retrocession
Categories: Econ
“Retrocession” is one of those fun words that has multiple meanings. It’s kind of like “jam.” Are we in trouble, are we making rad music with our broskis, or are we spreading something on toast? The meaning of the word depends on the context in which we use it. When it comes to “retrocession,” there are really three different definitions. We’ll take a brief journey through each, and then we’ll all be much better able to decide which one best fits whatever conversation we’re having.
If we’re talking with our financial friends, chances are we’re not talking about the “retrocession” that is the opposite of “secession.” In this scenario, “retrocession” is when land is given back to the government or other entity from which it was taken. In 1997, the UK gave Hong Kong back to China; this is an example of retrocession.
In the insurance world, “retrocession” happens when one reinsurance company sells some of their risk to another one. This is done to protect the first company in case of catastrophe. For example, if some ginormous hurricane causes insane amounts of damage to a bunch of the first company’s clients, they may not have enough funds on hand to cover all of the expenses they need to cover. By retroceding some of their risk to another company, they make it less likely that they’ll run out of money as a result of one huge insurance event.
And finally, let’s get back to our financial friends. If they use the term “retrocession,” they’re probably referring to the controversial fees and kickbacks that tend to get passed around between financial asset managers and their advisors and distributors. Why controversial? Because if Sandy gets paid a hefty commission to push a certain product, then is she really acting in the best interest of her investors, or is she just trying to score that commission? It can be really hard to tell sometimes, which is why this type of retrocession tends to get some big frowny-faces from folks who advocate things like impartiality and transparency in financial transactions and interactions.
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Finance: What is Recession?15 Views
finance a la shmoop what is recession well here's one here's another and
another and well here's an economic recession so technically when GDP [Set of teeth appear]
declines for two sequential quarters that is a recession and you can glean
enough from this most excellent chart that in most years GDP grows not
massively but relatively steadily and with compounding the US has grown GDP
from a trickle to a torrent in a recession economic activity declines [Recession definition appears]
maybe a half a percent a percent maybe two percent and you might not think
that's a big deal but we're a nation living on credit that is plastic these [Man using credit card]
things mortgages car loans bunch of other credit II kind of things so a
decline of even 1% when we were expecting growth of two is a delta of 3%
and that change is exacerbated with leverage when people fear for their job
safety they stop buying those extra pairs of earrings at the mall they get [Woman biting her nails]
one less tattoo and they stop making appointments at Botox Depot so all of
the sudden activity in given quote luxury sectors or otherwise unquote just [Person receiving a tattoo]
stops dead and there's a multiplier effect here as well because a wealthy
banker who used to throw 20 parties a year now only throws four so all those [Calendar displaying party days appears]
bartenders and oboe players and ice sculptors yeah they're all out of work
as well and then they buy less beer and that new ice pick the sculptor was gonna
buy yeah well she'll just sharpen her own and make do with it you know until
the GDP grows again after the recession is over in a few years so yeah [Boom/bust cycle appears]
recessions they're dangerous and credit high credit makes them all the more
dangerous so be wary