Primary insurers cannot keep every large risk on their own books. Reinsurance is the insurance that insurers buy to transfer portions of their risk to other companies. The original policyholder still deals only with the primary insurer; the reinsurance contract sits behind the scenes.

Proportional treaties share premium and losses by fixed percentages. Excess-of-loss covers respond only when a loss or event exceeds a retention. Facultative placements handle individual risks that fall outside automatic treaties. In each case the reinsurer receives a share of premium in exchange for its share of future claims.

Reinsurance stabilizes results, increases underwriting capacity, and provides expertise on complex exposures. Cedents must still pay the full claim to the policyholder even if the reinsurer later fails to reimburse. Careful selection of financially strong reinsurers and clear treaty wording therefore matter as much as the price of the protection.

• Insurance bought by insurers to transfer risk
• Includes proportional and excess-of-loss forms
• Increases capacity and stabilizes results
• Leaves the primary insurer liable to the policyholder