Reinsurance

AAA

DEFINITION of 'Reinsurance'

The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.

Also known as "insurance for insurers" or "stop-loss insurance".

INVESTOPEDIA EXPLAINS 'Reinsurance'

Overall, the reinsurance company receives pieces of a larger potential obligation in exchange for some of the money the original insurer received to accept the obligation.

The party that diversifies its insurance portfolio is known as the ceding party. The party that accepts a portion of the potential obligation in exchange for a share of the insurance premium is known as the reinsurer.

RELATED TERMS
  1. Clash Reinsurance

    A type of reinsurance that provides additional coverage to the ...
  2. Assumption Endorsement

    A supplemental insurance policy stipulating that, should the ...
  3. Ceding Company

    An insurance company that passes the part or all of its risks ...
  4. Cedent

    A party to an insurance contract who passes financial obligation ...
  5. Finite Reinsurance

    A type of reinsurance that transfers over only a finite or limited ...
  6. Multiline Insurance

    An insurance instrument used to bundle the risk exposures of ...
Related Articles
  1. Home & Auto

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  2. thinkstock|itock
    Investing Basics

    Determining Risk And The Risk Pyramid

    Many investors do not understand how to determine the risk level their individual portfolios should bear.
  3. Home & Auto

    When Things Go Awry, Insurers Get Reinsured

    Guru Warren Buffett is making this sector popular. Learn more here.
  4. Home & Auto

    What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit the total loss the original insurer would experience in case of disaster. ...
  5. Trading Strategies

    Is using the Donchian channel more risky or more conservative than using Bollinger Bands®?

    Read about differences between Bollinger Bands and Donchian Channels, and learn why the latter are considered to be a riskier trading tool.
  6. Investing

    What are the risks associated with investing in telecommunication stocks

    Read about some of the risks associated with investing in telecommunication stocks, including several that are specific to the telecom industry.
  7. Active Trading Fundamentals

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  8. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  9. Trading Strategies

    What is the logic behind using Bollinger Bands® as an indicator of volatility?

    Discover the logic behind using Bollinger Bands as a measure of price volatility for a security, and how the bands adapt to changing price ranges.
  10. Technical Indicators

    Are Bollinger Bands® useful for analyzing securities with very low volatility?

    Learn more about Bollinger Bands, a tool based on standard deviations of moving average that can be applied to both high and low volatility stocks.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center