Reinsurance is the insurance term for transferring part of an insurer’s risk to another insurer. The original insurer is called the cedent, and the company accepting the transferred risk is the reinsurer.
Reinsurance allows insurers to reduce the impact of unusually large claims, stabilize results, and write policies with limits larger than their own balance sheets might otherwise support. It can cover individual risks, portfolios, or catastrophe exposures such as hurricanes and earthquakes.
The term is often confused with coinsurance. Coinsurance generally means that two or more insurers share a risk directly, while reinsurance is a separate contract between an insurer and a reinsurer. Underwriting is the process of evaluating and pricing risk, not the transfer itself.
Reinsurance may be arranged through treaties covering categories of business or through facultative contracts negotiated for particular risks. It is a core part of the global insurance system because losses can be distributed across companies and countries.