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. Insurance

    When Things Go Awry, Insurers Get Reinsured

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

    The Reinsurance Industry: An Inside Look

    Low demand and high regulatory pressures may be problematic for the global reinsurance market following the shrinking margins and declining demand of the first half of 2016.
  3. Insurance

    Facultative vs. Treaty Reinsurance: Differences and Examples

    Reinsurance companies offer insurance to other insurers in case the traditional insurer does not have enough money to pay claims against its written policies.
  4. Insurance

    Insurance, Excess Insurance and Reinsurance: What's the Difference? (ALL)

    Understanding the differences might help you avoid being overinsured or underinsured.
  5. Insurance

    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.
  6. Insurance

    Third Point Reinsurance Notes Largest Profit in Years

    Third Point Reinsurance saw a tripling of net income in the second quarter of 2016 over last year.
  7. Taxes

    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.
  8. Trading

    Are Derivatives A Disaster Waiting To Happen?

    They've contributed to some major market scandals, but these instruments aren't all bad.
  9. Insurance

    World's Top 10 Insurance Companies

    These are the 10 largest insurance companies in the world.
  10. 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.
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. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center