Definition
Reinsurance
Reinsurance is insurance for insurers, where a reinsurer assumes part of the risk an insurer has underwritten in exchange for a share of the premium.
By ceding portions of large or numerous risks to reinsurers, primary insurers protect their capital, stabilise results and increase the volume of business they can safely write. In India, GIC Re is the national reinsurer and gets first right of refusal on cessions, alongside foreign reinsurer branches operating under IRDAI.
Reinsurance arrangements come as treaty (covering a whole class of risks automatically) or facultative (negotiated risk by risk). It is vital for catastrophe-exposed lines like property and for very large life sums assured, spreading peak risks across the global market.
Related terms
- Treaty ReinsuranceTreaty reinsurance is an arrangement where the reinsurer automatically accepts a defined share of all risks within an agreed class written by the insurer.
- Facultative ReinsuranceFacultative reinsurance is the case-by-case reinsurance of a single, often large or unusual, risk that falls outside or above the insurer's treaty arrangements.
- RetentionRetention is the portion of a risk an insurer keeps on its own books rather than ceding to reinsurers.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.