Reinsurance

Insurance for insurers, transferring part of a risk or book from a primary carrier to a reinsurer.

Overview

Primary insurers, called cedents, buy it to smooth catastrophe volatility, protect surplus against large losses, gain capacity to write bigger lines, and exit lines through loss portfolio transfers. Reinsurers concentrate in Bermuda, London, continental Europe, and the United States, with the largest writers running books across every continent, and they trade risk among themselves as well. Contracts split proportional, sharing premium and losses by fixed percentage, and nonproportional excess of loss, paying above a retention until a limit. Ceding commissions fund acquisition costs. Credit risk sits with the reinsurer, so ratings matter, and collateral rules govern which foreign paper US regulators treat as admitted assets.