Catastrophe Excess Reinsurance

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DEFINITION

Insurance for catastrophe insurers. Because of the unpredictable nature of catastrophes, the large amount of damage they cause and the high number of insurance claims that occur as a result, a catastrophe insurance company faces a significant risk of its business going under.

To mitigate this risk, catastrophe insurers rely on catastrophe excess reinsurance. The reinsurance company accepts a portion of the potential obligation in exchange for a share of the insurance premium.

INVESTOPEDIA EXPLAINS

In the absence of catastrophe excess reinsurance, insurers may restrict new business or refuse to renew existing policies after a catastrophe. Thus, catastrophe excess reinsurance benefits not only catastrophe insurance companies (by helping them to stay in business) but the market as a whole (by making catastrophe insurance more widely available).


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