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.
Sources:
http://economictimes.indiatimes.com/definition/reinsurance