Did a Summer job for a reinsurance company in Austin back when I was in undergrad. They deal with amounts of money that are staggering.
Basically, the way it works is... if you want to insure something huge, like an entire resort complex, no single insurance company can afford to insure the whole thing; if it goes down, it'll take the company with it.
So a primary insurer takes, say, the first $1M worth of claims. They're responsible for everything under that. Then, they sell the rest of the value of the thing to reinsurance companies. The next $1M-$50M will be held by another company; the next $50M-$200M by another, and so on until the whole thing is covered. The reinsurance companies cover more of the value, but pay fewer of the claims, and the risk is managed by being covered by a bunch of companies.
To give you an idea of the kind of money they deal with -- and remember, this is back in the 1990s -- hear this true story.
It's late July. I'm helping one underwriter (let's call him Andy) with a printer issue, and another underwriter comes in (let's call him Bob) because he lost $75M on a claim. Bob is whining that the owner is going to fire him over it, while Andy's reassuring Bob that he did the numbers right and that these things happen. Bob meanders off, and Andy turns to me and says, "He's being modest. He could lose that much every day for the rest of the year, and still come out ahead."
That's one underwriter, in late July, who could lose $75M every day of the year and would stll be ahead. At 1990s prices.
They deal with amounts of money that are staggering.
No, it means Knight will have to pay.