Browse Definitions :
Definition

reinsurance

Contributor(s): Matthew Haughn

Reinsurance is insurance for insurers. Insurance is an agreement between a provider and a client stipulating that compensation will be paid in the event of particular occurrences and, in exchange for that protection, the client pays a premium. Reinsurance protects insurers against excessive losses, helping to ensure their sustainability and prevent bankruptcy and failure as a business.

In preparation for a known-risk time such as a major accident claim or a coming storm, insurance companies might purchase reinsurance. Reinsurance limits a company’s claim losses to a specific amount. This limiting on a case can often help a company prevent exceeding the insurance premiums collected in a year. Instead of having the required capital on hand to cover claims, an insurance company may also hold the value in reinsurance.

Reinsurance fits into two main categories, treaty or facultative:

  • Treaty reinsurance covers some or all of an insurer’s risks for an agreed-upon period of time.
  • Facultative reinsurance covers against a specific risk case.

Either treaty or facultative reinsurance may be proportional, in that the insurer may have to cover a portion of the costs (usually a percentage). Proportional insurance and reinsurance are also called pro-rata. Non-proportional reinsurance only begins when losses exceed an agreed upon amount. Once this amount is exceeded the reinsurance covers all additional losses. Non-proportional reinsurance is also called excess of loss insurance as that is what it protects against: losses to greater than the company agrees to bear.

This was last updated in December 2017

Continue Reading About reinsurance

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

SearchCompliance

  • risk management

    Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings.

  • compliance as a service (CaaS)

    Compliance as a Service (CaaS) is a cloud service service level agreement (SLA) that specified how a managed service provider (...

  • data protection impact assessment (DPIA)

    A data protection impact assessment (DPIA) is a process designed to help organizations determine how data processing systems, ...

SearchSecurity

  • Port Scan

    A port scan is a series of messages sent by someone attempting to break into a computer to learn which computer network services ...

  • DMZ (networking)

    In computer networks, a DMZ (demilitarized zone), also sometimes known as a perimeter network or a screened subnetwork, is a ...

  • quantum supremacy

    Quantum supremacy is the experimental demonstration of a quantum computer's dominance and advantage over classic computers by ...

SearchHealthIT

SearchDisasterRecovery

  • business continuity plan (BCP)

    A business continuity plan (BCP) is a document that consists of the critical information an organization needs to continue ...

  • disaster recovery team

    A disaster recovery team is a group of individuals focused on planning, implementing, maintaining, auditing and testing an ...

  • cloud insurance

    Cloud insurance is any type of financial or data protection obtained by a cloud service provider. 

SearchStorage

Close