Why Reinsurance Exists
Explain reinsurance as insurance for insurers and connect it to capacity, volatility, and solvency.
Policyholders buy insurance; insurers often buy reinsurance. The Basic Idea Reinsurance is a risk-transfer agreement where an insurer transfers part of its own insured risk to a reinsurer. The primary insurer writes policies and serves policyholders. The reinsurer sits behind the insurer and shares defined losses under a reinsurance contract. Why It Matters Reinsurance can stabilize results, protect surplus, spread catastrophe exposure, and create underwriting capacity. A hurricane, wildfire, or liability shock can affect many policyholders at once. Without risk sharing behind the insurer, one event could strain the insurer's capital more severely. The Boundary Reinsurance does not erase the…
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