Understanding Reinsurance

Reinsurance is insurance for insurance companies. It’s a way of transferring or “ceding” some of the financial risk insurance companies assume in insuring cars, homes and businesses to another insurance company, the reinsurer. Reinsurance, a highly complex global business, accounts for about 7 percent of the U.S. property/casualty insurance industry premiums.

The reinsurance business is evolving, following the trend in the financial services in general as the various components of the business broaden and converge. Traditionally, reinsurance transactions were between two insurance entities: the primary insurer that sold the original insurance policies and the reinsurer. Most still are. Primary insurers and reinsurers can share both the premiums and losses or reinsurers may assume the primary company’s losses above a certain dollar limit in return for a fee.

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