Reinsurance

Reinsurance is an arrangement under which one insurer (the reinsurer) indemnifies an insurance company for a portion or all of the risk taken on through an insurance contract. The relationship between the insurance company and its clients remains in place, where it compensates the clients for any claims made. The clients are not aware that a reinsurer exists.

The intent behind this arrangement is to allow the insurance company to take on an insurance contract that might otherwise be too risky for it to handle. By offloading some of its risk, an insurance company can also increase the number of insurance policies that it underwrites.