Reinsurance

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Reinsurance

Reinsurance (pronounced: ree-in-shur-uhns) is a practice in the insurance industry where an insurance company reduces its risk of paying large claims by insuring a portion of its risk with another insurance company. The company that takes on the reinsured risk is called the reinsurer.

Etymology

The term "reinsurance" is derived from the prefix 're-', meaning 'again' or 'back', and 'insurance', referring to the practice of risk management. Thus, reinsurance literally means 'insuring again' or 'insuring back'.

Types of Reinsurance

There are two main types of reinsurance: Facultative Reinsurance and Treaty Reinsurance.

Facultative Reinsurance is a type of reinsurance in which the reinsurer can accept or reject any risk presented by an insurance company.

Treaty Reinsurance, on the other hand, is a type of reinsurance in which the reinsurer agrees to accept all risks of a certain type from the insurance company.

Related Terms

  • Cedent: The insurance company that transfers the risk to the reinsurer.
  • Retrocession: The practice of reinsurers transferring risks to other reinsurers.
  • Reinsurer: The company that takes on the reinsured risk.
  • Underwriting: The process of evaluating the risk and exposures of potential clients.

See Also

External links

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