Reinsurance
Reinsurance is insurance for insurance companies. In a reinsurance transaction, one insurer (the reinsurer) agrees to indemnify another insurer for part of the losses it may pay on the policies it has written.
Reinsurance works by transferring risk. An insurer that has written policies passes, or 'cedes,' a portion of that risk to a reinsurer in exchange for a share of the premium. The original insurer stays fully responsible to its own policyholders, but the reinsurer reimburses it for the agreed share of covered losses. This arrangement lets insurers write larger or more volatile books of business than their own capital would otherwise support.
Reinsurance matters because it spreads risk across the global market, smooths an insurer's financial results, and protects against catastrophic accumulations such as a hurricane or earthquake that could strike many policies at once. It also frees up capital so the insurer can meet regulatory solvency requirements and continue underwriting. Regulators and rating agencies generally view a sound reinsurance program as a sign of financial strength.
A simple example: a carrier issues a 10 million dollar property policy but wants to keep only 2 million dollars of exposure on its own books. It reinsures the remaining 8 million dollars, so if a covered loss occurs, the reinsurer pays its agreed share while the carrier retains the rest.
RiskCube Re, described as the first AI-native reinsurance company, applies this same principle to provide capacity for MGAs and carriers underwriting emerging and complex risks.
Definitions are educational and general, and specific contracts, endorsements, and state rules may modify them. For regulatory guidance, refer to the NAIC or the Insurance Information Institute.