​Like other businesses, insurance companies, require protection against risk. Insurers buy insurance from another insurer to reinsure risks they assume. The additional insurer is known as a reinsurer.

​Reinsurance is insurance for insurance companies. It helps insurers manage risk. In exchange for a share of insurance premiums, a reinsurance company will take on part of the insurance risk.

Reinsurance companies typically cover catastrophic losses, when the total losses exceed a specified amount.

There are two kinds of reinsurance:

  • Facultative reinsurance, which is negotiated separately for each insurance policy that is reinsured
  • Treaty reinsurance, which covers a specified share of a group of policies.