Reinsurance is a form of insurance that is purchased by insurance companies to help protect them from large-scale losses. It is a way for insurance companies to share the cost of claims in exchange for a portion of the premiums and fees collected from insured parties that purchase the insurance.

Reinsurance is a risk transfer mechanism that enables a primary insurer to purchase additional risk protection from a reinsurer in order to mitigate some of the risk associated with offering insurance policies. By sharing the responsibility of providing protection to clients, the insurance companies can better manage their risk profiles, reduce potential losses and limit their liabilities. By sharing costs, the insurer is able to spread their risk across a larger pool and, in turn, be able to offer lower premiums to their customers.

Reinsurance is an important part of the global risk management landscape and helps keep the insurance industry functioning properly. By allowing companies to access additional risk protection, reinsurance helps them to better manage their reserves and leverage their resources to offer more competitive rates to their customers.

Reinsurers may act as brokers, actively searching for primary insurers to offload risk, or act as large insurers themselves accepting risk from various other companies and providing protection in return for premiums. These reinsurers are usually conglomerates of individual companies that pool their expertise and resources to create a much larger insurance market that can better manage their risk exposure.

Reinsurers identify the types of risks and their possible consequences, then assess the risk probability and make their decision to accept or decline the proposed reinsurance deal. Reinsurers may also create risk management policies, suggest loss prevention measures and investigate existing ones. They also advise primary insurers on how to better handle claims and coordinate their payments accordingly.

Reinsurance is an invaluable tool for managing risk in the insurance industry, allowing insurance companies to access the resources of a much larger pool of expertise and capital that they otherwise wouldn’t be able to leverage. It also helps insurance companies to remain viable by allowing them to develop more competitive rates that customers can rely on.