Legal & Regulatory
Reinsurance
Reinsurance allows primary insurers to limit their exposure to large or catastrophic losses by ceding a portion of premium and liability to reinsurers—enabling them to underwrite more risk than their capital alone could support.
Last reviewed: May 2026 · Editorial methodology
Definition
Reinsurance is a financial arrangement in which a primary insurance company (the 'cedent' or 'ceding company') transfers a portion of its underwriting risk to one or more reinsurers in exchange for a corresponding portion of premium. By ceding risk to reinsurers, primary insurers can: stabilize their loss experience by limiting the impact of large individual claims or catastrophe events; increase their underwriting capacity beyond what their policyholder surplus alone would support; protect against reserve inadequacy; and facilitate market entry in new geographic areas or lines of business. Reinsurance transactions are governed by reinsurance agreements (treaties for ongoing portfolio arrangements, or facultative certificates for individual risks) rather than standard insurance policies, and are typically negotiated directly between the cedent and reinsurer or through a reinsurance broker. Major reinsurers include Munich Re, Swiss Re, Berkshire Hathaway Reinsurance, and Lloyd's syndicates. The global reinsurance market is estimated at over $600 billion in annual premium. Unlike primary insurance, reinsurance is largely unregulated at the state level (though credit for reinsurance in statutory financial statements is subject to NAIC collateral requirements). Reinsurance pricing cycles significantly affect primary insurance market availability and pricing: after major catastrophe years, reinsurance costs rise sharply, directly increasing primary insurer costs and ultimately consumer premiums.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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