reinsurer

A reinsurer is an insurance company or a division of an insurance company that provides financial protection to other insurers by taking on part or all of their risk in exchange for a premium. Reinsurers help primary insurers expand capacity, stabilize results, and manage capital requirements by transferring exposure to and from the ceding company.

Reinsurance arrangements are typically categorized as proportional or non-proportional. In proportional reinsurance, the reinsurer shares a portion of premiums and losses, as in quota share or surplus arrangements. In non-proportional reinsurance, the reinsurer covers losses that exceed a specified amount, such as excess of loss or stop-loss. Reinsurance can be arranged on a facultative basis, for individual risks, or on a treaty basis, covering a defined portfolio of risks.

Reinsurers may provide underwriting expertise, pricing support, and access to broader capital and markets. They assess risk using historical data, exposure analysis, and catastrophe modeling, and set premiums accordingly. The ceding insurer pays the reinsurer a premium, and the reinsurer indemnifies the ceding company for covered losses according to the terms of the contract. In some structures, reinsurers participate in profits or use other incentive mechanisms.

Retrocession is the practice by which reinsurers transfer portions of their risk to other reinsurers to further diversify and manage exposure. The reinsurance market is global and includes large multinational reinsurers, specialist firms, and markets such as Lloyd’s. Regulation and capital requirements influence reinsurers’ operations, risk management, and solvency.