Reinsurance
Insurance purchased by an insurer from another insurer (the reinsurer) to transfer part of its exposure on a risk or book of business, used to stabilize losses and increase capacity.
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Practice This Concept
In a reinsurance arrangement, the primary insurer that transfers part of its risk to a reinsurer is called the:
Ceding company — The insurer that buys reinsurance is the ceding company because it cedes (transfers) a portion of its exposure to a reinsurer. The reinsurer indemnifies the ceding company for the ceded losses in exchange for a share of the premium. Reinsurance helps insurers handle large exposures, stabilize results over time, and increase capacity to write business without exceeding regulatory limits. The policyholder's contract remains with the ceding company, which remains fully responsible for paying claims under its policies.
National insurance concept
An insurer purchases reinsurance primarily to:
Transfer part of its risk to another insurer to reduce the impact of large or numerous losses — Reinsurance is insurance for insurers: the ceding company transfers a portion of its risk to a reinsurer in exchange for part of the premium, protecting against losses that are too large for the primary insurer to absorb comfortably. This increases the insurer's capacity and stabilizes its financial results. It does not affect policyholders' direct relationship with the insurer or the marketing of policies.
National insurance concept
- General InsuranceIn a reinsurance arrangement, the primary insurer that transfers part of its risk to a …
- General InsuranceAn insurer purchases reinsurance primarily to:
- General InsuranceThe primary purpose of reinsurance is to:
- General InsuranceWhen an insurer transfers part of its risk to another insurer through reinsurance, the …
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