Glossary

Reinsurance

Insurance an insurer buys from a reinsurer to transfer part of its risk, add capacity and protect its capital from large or accumulated losses.

Also called: ceded reinsurance, reinsurance treaty, reinsurer, insurance for insurers

Reinsurance is insurance for insurance companies. An insurer, called the cedent, pays premium to a reinsurer, which agrees to reimburse part of the insurer's losses. That lets a carrier write larger policies than its own capital would support, smooths results across a bad year, and protects against catastrophes that hit many policies at once.

Two structures dominate. In proportional reinsurance, such as a quota share, the reinsurer takes a fixed share of the premium and of every loss. In excess of loss, the reinsurer pays only losses above a retention, per risk or per event. Contracts also differ by scope: treaty reinsurance automatically covers a defined book of business, while facultative reinsurance covers one risk negotiated individually.

For a policyholder, the reinsurance contract is between the insurer and the reinsurer. You generally have no direct claim against the reinsurer, and the insurer's duty to pay you does not shrink if its reinsurer fails to pay. Reinsurance still reaches your premium. When catastrophe reinsurance gets expensive, primary insurers raise rates or restrict capacity in wind and earthquake zones. Many treaties renew on January 1, with others on June 1 and July 1.

The guide on what is reinsurance, and why it affects your business premium explains the mechanics for business buyers, and how reinsurance pricing flows into business insurance premiums traces the price effect.

Last reviewed October 10, 2026

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Related terms

Cedent The insurer that passes part of its risk and premium to a reinsurer, and stays liable to its own policyholders for the whole. Treaty reinsurance A reinsurance contract that automatically covers a defined portfolio of an insurer's policies, instead of reinsuring one risk at a time. Facultative reinsurance Reinsurance negotiated for one specific risk or policy rather than a whole book of business, usually because the risk is large or unusual. Retrocession Reinsurance bought by a reinsurer to pass part of the risk it has assumed to other reinsurers or investors, usually to manage peak catastrophe exposure. Fronting An arrangement where a licensed insurer issues the policy but passes most or all of the risk to a captive or reinsurer, for a fee.

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