The circulation of a single risk retroceded in a loop within a closed circle of reinsurers, concentrating it instead of diluting it.
The retrocession spiral describes the mechanism by which a risk ceded several times within a small group of reinsurers may return to strike its original carrier repeatedly. Each believes it has transferred a share of its exposure while it has in fact kept it by a roundabout path, so that retrocession in a closed circle does not spread the risk, it makes it circulate, and a circulating risk accumulates at the nodes of the circle. The London market suffered this painfully at the turn of the nineties. Its gravest consequence is informational, no one holds a consolidated view of who really carries what once the retrocessions are unwound.
A risk retroceded in a closed circle is not transferred but recycled, and should therefore not relieve capital requirements as a genuine cession to a third party outside the circle would.
spirale LMX, spirale de réassurance