Reinsurance is often described as insurance for insurance companies. It’s a way for insurance companies to transfer some of the financial risk they assume when issuing insurance policies. They do this by ceding some of their risk to another insurance company, the reinsurer. This protects traditional insurers against circumstances where they don’t have enough money to pay out all of the claims owed.
By law, insurance must have enough capital to be able to pay out potential future claims on all policies written. As the Insurance Information Institute explains: “If the insurer can reduce its responsibility, or liability, for these claims by transferring a part of the liability to another insurer, it can lower the amount of capital it must maintain to satisfy regulators that it is in good financial health and will be able to pay the claims of its policyholders.”
You've reached your limit - Register for free now for unlimited access
To read the full story, and get unlimited access to Insurance Business website content, just register for free now. GET STARTED HERE
Already a website member? Log in below.