Reinsurance
Reinsurance is insurance an insurer buys from another insurer. The original insurer transfers part of its risk and pays the reinsurer a premium, and the reinsurer reimburses part of its covered losses. Your original insurer normally still handles and pays your claims, and your coverage, deductible and limit stay the same.
Also called: RI, reinsurer, ceding insurer, cedent, treaty reinsurance, facultative reinsurance
If a renewal notice, claim letter or insurer disclosure mentions a reinsurer, your claim still goes to the company that issued your policy. Reinsurance is a separate contract between insurers, and it sits behind your policy rather than inside it. What can change your rights is a specific document, such as an endorsement, an assumption agreement or a cut-through provision, so the useful question is whether any of those apply to you.
How a reinsurer shares a loss
A reinsurer's obligation starts only after the original insurer owes money under the underlying policy, according to the NAIC (opens in a new tab). The insurer that passes on risk is called the ceding insurer or cedent. In a quota-share arrangement, the two companies split premiums and losses by an agreed percentage. The NAIC's regulator introduction (opens in a new tab) illustrates it with a $200,000 covered loss under a 50 percent quota share.
Hover or tap a row to highlight it.
| Step | Amount |
|---|---|
| Policyholder's claim paid by the original insurer | $200,000 |
| Reinsurer reimburses the insurer (50% of $200,000) | $100,000 |
| Insurer's net loss after the reimbursement | $100,000 |
You receive the full $200,000 from your insurer, subject to your policy's terms, and you do not collect from the reinsurer. The $200,000 and 50 percent figures are illustrations, not an average claim or a standard split.
The main types of reinsurance and what each changes
Reinsurance contracts are individually negotiated, and there is no standard contract, according to the NAIC Receiver's Handbook (opens in a new tab). The structures still fall into recognizable groups. Proportional reinsurance gives the reinsurer an agreed share of premiums and the same share of covered losses; a quota-share treaty uses one fixed percentage for every covered policy. Surplus-share reinsurance lets the insurer keep a set amount, called a retention or line, and passes on amounts above it up to the agreement's maximum.
Non-proportional structures respond to size rather than share. Excess-of-loss reinsurance pays losses above a stated retention, up to a stated limit, and can apply per risk, per occurrence or to a total of losses. Stop-loss reinsurance responds once the insurer's total losses pass a threshold, often expressed as a percentage of premium. Separately, treaty reinsurance accepts risks automatically within a defined portfolio, while facultative reinsurance looks at one risk at a time and accepts or rejects it.
For the insurer, a larger retention leaves more loss on its own books, and a lower retention or broader protection cuts its net exposure at a cost. Reinsurance helps insurers manage capital, capacity and catastrophe exposure. How any of that reaches your premium depends on the insurer's own rating and underwriting.
Where you see the term
Reinsurance shows up most in insurer financial disclosures, insolvency notices, regulatory filings and company transaction documents. Commercial buyers with large or unusual risks see it more often, along with people in life, health, property, catastrophe, mortgage-guaranty and crop insurance. It is not ordinarily a coverage option on an auto, homeowners, condo, renters, life, health or pet quote.
On your own paperwork, the word matters when it names a change. A renewal notice or claim letter may mention it if your insurer transferred or took on a block of policies, or if a direct-payment provision applies. A quote, binder, declarations page or endorsement is worth a closer look when it specifically refers to a reinsurer, an assumption, a novation or a cut-through provision. Ordinary reinsurance leaves the original insurer directly responsible, while an assumption and novation can substitute a new insurer as the company you deal with.
Reinsurance is also a different idea from coinsurance. Coinsurance describes your share of covered health costs or a requirement to insure property to a stated percentage of its value. Reinsurance is risk passed from one insurer to another, and you are not a party to it.
Questions to ask an agent or insurer
- Does the reinsurance mentioned here change my policy, my insurer or my claims contact? This tells you whether the term touches your own contract at all.
- If my insurer becomes insolvent, who is responsible for my claim, and does my policy or an endorsement contain an assumption, novation or cut-through provision? Policyholders generally have no direct right to reinsurance proceeds unless one of those arrangements or the law provides it, according to the NAIC Receiver's Handbook (opens in a new tab).
- Has my policy moved to another insurer, or has only part of the insurer's risk been reinsured? The first can give you a new direct insurer; the second normally does not.
- Does the arrangement change my premium, deductible, coverage limit, exclusions or renewal terms? Reinsurance manages the insurer's risk and does not on its own change your stated terms.
- If a claim is disputed, should I contact my current insurer, a new insurer, a receiver or a guaranty association? The answer depends on your policy, the transaction documents, the insurer's status and state law.
Frequently asked questions
These are the questions people ask once a reinsurer's name appears on their paperwork.
Can I file a claim directly with the reinsurer?
Usually not. A direct route exists only if your policy, an endorsement, an assumption and novation, a cut-through provision or the applicable law creates one. Otherwise the claim goes to your insurer, which then seeks its own reimbursement.
What happens to my claim if my insurer fails?
Individual policyholders are not parties to the reinsurance contract, so they generally cannot collect its proceeds directly. State guaranty associations may step in, and their benefit limits vary by state and depend on the affected state's law, according to the NAIC Receiver's Handbook (opens in a new tab). Your state insurance department and guaranty association can tell you which rules govern your policy.
Does reinsurance lower my premium?
Not automatically. Reinsurance helps insurers manage capital, capacity and loss exposure, according to the NAIC (opens in a new tab), but the arrangement alone does not set a particular premium reduction for you. Your agent or insurer can explain what drove a change on your renewal.
Does reinsurance change my deductible or limit?
No. Your deductible and limits come from your issued policy, declarations and endorsements. Only a policy form, endorsement, assumption, novation or applicable law can change that arrangement.