What is Reinsurance?

[Nayros]

Reinsurance is an insurance purchased by another insurance company. In reinsurance, some or part of its liabilities are passed ('ceded') to the otherinsurance company.


Insurers purchase reinsurance for four reasons:
1. To limit liability on a specific risk,
2. To stabilize loss experience,
3. To protect themselves and the insured against catastrophes, and
4. To increase their capacity.


Reinsurance benefits:
1. Risk Transfer
2. Companies can avoid having to absorb large losses by passing risk; this frees up additional capital.
3. The expertise of another insurer can help a company obtain a higher rating and premium.

What do you mean by Risk Transfer ?