Professional Reinsurer
In the insurance field, we have insurance companies, which is where every individual or company goes to get insurance policies, and then there are reinsurance companies. Now, you might ask yourself what is a reinsurer as it probably isn’t a term that you encountered unless you work in an insurance company. Simply put, a reinsurer is a company that exists to give insurance companies financial protection. If an insurance company signs a policy that offers more coverage than they can cover, they turn to a reinsurance company. Like that, an insurance company has access to more business that would otherwise be too expensive or costly for them to cover.
What does a Reinsurer do?
As mentioned above, the sole purpose of a reinsurance company is to provide additional insurance options that a typical insurance company doesn't offer. Yes. I know … a lot of insurers here, but we’ll simplify. The only business for reinsurance companies is to reinsure insurance companies. No individual person or company can go directly to the reinsurance company for coverage. They are very rarely even aware that a reinsurance company is involved at all in the process.
The insurance company is the one that individuals and companies go to so that they can purchase insurance policies. They sign a contract, and the policy goes into effect. Those individuals and companies then became policyholders who pay premiums to the insurance company by paying, let’s say, $100 and get coverage in case of damage of $10,000. The insurance company will pay the coverage for possible damage and reimburse the policyholder.
However, when an individual has an asset that requires a much higher coverage than the insurance company can give, are they to turn them away? If that would have happened, then the Titanic wouldn’t have been insured by anyone. Yes, that Titanic. An insurance company did insure the Titanic, however, and did pay damages once the cruise ship sank. The damages were so astronomical that the insurance company, which was a big one (Commercial Union), nearly went bankrupt and needed years to recover.
That might be one of the reasons why reinsurance companies came to be. Because an insurance company won’t tell their customers that the asset can not be insured, they will find a way to ensure it for their customers. This is where the reinsurance company comes in. The insurance company transfers part of the risk and premium to the reinsurer through cession. Like that, if worst comes to happen, the reinsurer covers a large amount of the damages. Reinsurers also aid insurance companies in case of natural disasters when thousands of claims come at the same time, and the coverage is too much for insurers to cover.
What types of Reinsurance are Reinsurers Offering?
There are only four types of reinsurance policies that are offered by reinsurance companies:
- Facultative Reinsurance - covers single insurance policies like life insurance for a very wealthy individual;
- Treaty Reinsurance - covers a large amount of similar risks;
- Proportional Reinsurance - the pro rata share of premiums and risk split between the insurer and reinsurer;
- Non-proportional Reinsurance - covers losses based on the size of those losses.
Popular Insurance Terms
Cancellation of an insurance policy on the date that policy becomes effective. This type of cancellation does not require any fees to be paid to the insurance company. ...
Display of percentage of earned premiums as a function of the time in days for term property insurance policies originally written for one year or longer. These tables are used to compute ...
Retention of all files of policies sold by the agent of record who, according to written agreement with the insurance company, has the exclusive rights to solicit renewals. ...
Rule adopted by the financial accounting standards board that requires that obligations owed to re-insurers under multiyear insurance contracts must be reported as liabilities by the ceding ...
Net income expressed as a percentage of average total equity. This percentage measures profitability by expressing how efficiently invested capital or equity is being utilized. ...
Relationship between occupation of an insured and degree of risk in such coverages as life, health, and workers compensation. Some occupations are more risky than others; for example, a ...
Business interruption insurance in which the insured is indemnified for loss of earnings and payment of expenses resulting from adverse weather conditions. For example, the raining out of a ...
Important means of preventing accidents and injuries. Insurers take corporate safety programs into account when rating workers compensation and other business insurance policies. ...
Coverage for a tenant with a favorable lease (enabling the lessee to rent premises for less than the market value). If the lease is canceled by the lessor because an insured peril (such as ...

Have a question or comment?
We're here to help.