Reinsured

Reinsured refers to an insurance company that has transferred some or all of its risk to another insurance company, known as the reinsurer. This process is called reinsurance. When an insurer issues a policy, it takes on the potential financial obligation of paying out claims. To manage this risk, especially for large or catastrophic events, the insurer may purchase reinsurance. In this arrangement, the original insurer (the reinsured) pays a premium to the reinsurer. In return, the reinsurer agrees to cover a portion of the losses that the reinsured incurs from its policyholders. This allows the reinsured company to maintain solvency and capacity to write more business, as its exposure to significant claims is reduced. Reinsurance can be structured in various ways, including facultative, where individual risks are reinsured, or treaty, where a block of business is reinsured according to pre-agreed terms. The reinsured benefits from financial stability and the ability to handle risks it might otherwise be unable to underwrite alone.