Insurance Topic
Reinsurance
A defined insurance mechanism in which an insurer transfers portions of risk to another insurer to stabilize results and manage aggregate exposure.
Definition
Reinsurance is a contractual arrangement whereby a primary insurer (cedent) cedes a defined portion of insured risk to a reinsurer in exchange for premium consideration, with the objective of reducing loss volatility, protecting capital, and supporting underwriting capacity.
Structural Components
- Ceding insurer: The insurer transferring risk.
- Reinsurer: The insurer assuming transferred risk.
- Treaty or facultative agreement: The contractual form governing scope and terms.
- Retention: The portion of risk the ceding insurer keeps.
- Ceded premium and recoverables: Consideration paid and claims amounts recoverable from the reinsurer.
Parameters & Conditions
- Applies on a proportional (e.g., quota share) or non-proportional (e.g., excess of loss) basis.
- Defines attachment points, limits, and event definitions.
- Subject to credit risk of the reinsurer and contractual reporting requirements.
- May be structured by peril, line of business, territory, or aggregate loss.
Topic Relationships
Exceptions, Limitations & Boundaries
Reinsurance does not alter policyholder rights under the original insurance contract and generally provides no direct claim rights to insureds absent specific contractual provisions. Coverage is limited to the terms, limits, and exclusions of the reinsurance agreement.
Reinsurance: Definitional FAQ
Is reinsurance insurance for insurers?
Yes. It is a risk transfer mechanism used by insurers to manage exposure and capital volatility.
Does reinsurance change an insured’s policy?
No. The underlying policy terms remain unchanged for the policyholder.
What forms can reinsurance take?
Common forms include proportional treaties and non-proportional excess-of-loss arrangements.