Finite Reinsurance

DEFINITION of 'Finite Reinsurance'

A type of reinsurance that transfers over only a finite or limited amount of risk. Risk is reduced through accounting or financial methods, along with the actual transfer of economic risk. By transferring less risk to the reinsurer, the insurer receives coverage on its potential claims at a lower cost than traditional reinsurance.

BREAKING DOWN 'Finite Reinsurance'

For example, an insurer will set aside an amount to cover a percentage of the payouts that would be required if the particular risk is realized. Only when the amount does not cover the payouts will the reinsurer cover the risk. This limits the potential risk that the reinsurer faces and leads to lower costs for the insurer. The amount set aside is usually invested in government bonds and provides income that is put against potential claims. Due to the highly complex structure of these risk instruments, there can be abuses where no risk is transferred and the insurer's income is improved.

RELATED TERMS
  1. Blended Covers

    A form of reinsurance that combines features of finite and convention ...
  2. Reinsurance Credit

    An accounting entry made by an insurer for premiums ceded to ...
  3. Cession

    The portions of the obligations in an insurance company's policy ...
  4. Yearly Renewable Term Plan of Reinsurance

    A type of life reinsurance where mortality risks are transferred ...
  5. Reinsurer

    A company that provides financial protection to insurance companies. ...
  6. Following Reinsurer

    A reinsurance company that signs onto a reinsurance treaty, but ...
Related Articles
  1. Personal Finance

    When Things Go Awry, Insurers Get Reinsured

    Guru Warren Buffett is making this sector popular. Learn more here.
  2. Managing Wealth

    How Does Reinsurance Work?

    Reinsurance is a practice in which insurers transfer portions of portfolios to other parties in order to reduce their exposure to claims.
  3. Investing

    2 Ways Hedge Funds Avoid Paying Taxes

    Learn about two strategies hedge funds use to minimize their tax liabilities. Read why some hedge funds are in the reinsurance business in Bermuda.
  4. Trading

    Are Derivatives A Disaster Waiting To Happen?

    They've contributed to some major market scandals, but these instruments aren't all bad.
  5. Managing Wealth

    World's Top 10 Insurance Companies

    These are the 10 largest insurance companies in the world.
  6. Personal Finance

    Transferring Credit Card Balances To A New Card

    Before you take advantage of that new credit card's 0% interest balance transfer offer, read our step-by-step guide.
  7. Personal Finance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  8. Managing Wealth

    Top 6 Companies Owned by Berkshire Hathaway

    Take a look at some of the biggest wholly owned subsidiaries in the Berkshire Hathaway family, and learn just how diversified this holding company has become.
  9. Investing

    2015's Best Balance Transfer Credit Card Promotions

    Trying to pay off a credit card balance at too high an interest rate? You might save a good chunk of cash with one of these balance transfer promotions.
  10. Markets

    Berkshire Hathaway Stock: Analyzing 5 Key Customers (BRK)

    Discover how Berkshire Hathaway began as a failing textile company and grew into the fifth-largest company worldwide with help from its key customers.
RELATED FAQS
  1. Why do some companies in the insurance sector engage in reinsurance?

    Discover how some companies in the insurance sector engage in reinsurance. Reinsurance allows insurance companies to transfer ... Read Answer >>
  2. What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit ... Read Answer >>
  3. What is Warren Buffett's relation to "Supercat" insurance?

    Understand the concept of catastrophe reinsurance and learn how Berkshire Hathaway makes billions providing such insurance ... Read Answer >>
  4. Are there any regulations on transfer pricing?

    Learn about transfer pricing, its role in intra-business calculations, and how the U.S. government regulates transfer pricing ... Read Answer >>
  5. What risks do I face when investing in the insurance sector?

    Read about the unique challenges faced by insurers, and learn how those challenges manifest themselves as risks for equity ... Read Answer >>
  6. What are the main factors that impact share prices in the insurance sector?

    Learn about some of the main factors that impact share prices in the insurance sector. Insurance companies make money by ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center