A Closed System for Currency Fluctuation Control

When an insurer accepts risk where the loss may have be incurred in a foreign currency, it is exposed to the additional risk of currency fluctuation. Normal strategies for handling this risk are discussed. A procedure is then outlined whereby entities (insurers, reinsurers, self-insureds, or, specifically in this ease, nuclear insurance pools) can create an automatic, reciprocal reinsurance system which will greatly reduce this risk. An experimental run of the system is illustrated in detail. There is little doubt, in the author’s opinion, that the system can be adapted to a variety of situations and has the potential to significantly reduce the risk of loss created by the currency fluctuation risk.