what is reinsurance?

Answer 1

Laying off bets to spread the risk.

Answer 2

While insurers may choose to underwrite 100% of smaller risks, they often seek to limit the amount of their exposure on large risks. Reinsurance involves an insurer ceding part of a large risk it has assumed to one or more other insurers. All insurers share in both the premiums collected and the losses incurred. The contract is between the primary insurer and the reinsurer, the insured is not party (or in most cases not even aware of) the contract. The policy is controlled by the primary insurer and all claims are paid by it. Only when the claim has been paid is the reinsurer asked to contribute its share of the loss.

Answer 3

It is a sub-industry of insurance, primarily made up of off-shore (Foreign) companies. Some of the popular countries for these companies include Bermuda, London (i.e. Lloyds), and continental Europe (home of the largest players in the industry).

Reinsurance is effectively insurance for insurance companies, as many others have already identified. However, as in insurance, there are many kinds of reinsurance. The two primary types are excess coverage and proportional coverage.

Excess (also called excess of loss) is coverage for an extreme event. This coverage is often structured in layers, which start at certain loss points. For example, an insurance company could choose to buy coverage for its homeowners policies in the state of Florida (in case of a hurricane), could buy $250 mm of coverage for losses in excess of $1 b.

Proportional (also called quota-share) is reinsurance where the reinsurer shares in the fortunes of an insurer in a certain line of business. What's the point for the insurer? It allows them to write more business, increasing their market share. Then, as the company's capital base grows and they can assume more risk, they can choose to reduce the proportion they cede to the reinsurance company. This effectively increases the size of their book of business, without the risk of taking on new customers.

Reinsurance, is a highly cyclical business which is driven by loss activity. In other words, pricing becomes very attractive right after big losses. For this reason, the companies in Bermuda are know by classes. The class of 2001 was formed after large losses from 9/11 and the Enron/Worldcom litigation losses. Also, the class of 2005 was formed after large industry losses from hurricanes, Katrina, Rita, and Wilma.

Answer 4

Reinsurance is a means by which an insurance company can protect itself against the risk of losses with other insurance companies. Individuals and corporations obtain insurance policies to provide protection for various risks (hurricanes, earthquakes, lawsuits, collisions, sickness and death, etc.). Reinsurers, in turn, provide insurance to insurance companies.

Answer 5

It is insurance offered by one insurance company to another. Usually the first company (the insured) keeps a part of the risk for themselves Then they re-insure the rest with companies B, C, etc.

That way, company A doesn't have all it's assets exposed for claims.

Answer 6

Insurance companies "re-insure" part of their larger accounts with special insurance companies that only do that type of business. They are called "re-insurers". That way, if the World Trade Center collapses, it doesn't make the insurance company broke by having to pay out hundreds of millions of dollars on just one claim.

Answer 7

Its a way of insurance companies laying off their risk, A bit like a bookmaker laying off bets to balance his book

Answer 8

It's insurance for insurance companies