February 20, 2024
A layman would understand reinsurance as “. . . insurance for an insurer.” Insurance people define reinsurance as the transfer by a primary insurer – called a cedant – of part of the risk it accepts to another party – called a reinsurer. Reinsurers are specialists – they do not accept risks from the insuring public. They get their business from insurers directly, through reinsurance brokers, or from each other.
In many markets, new business is hard to come by. Our economies are dry of new insurance business due to inadequate foreign direct investments. You may wonder, then, why an insurer that has incurred expenses and gone through the hassles of securing business, voluntarily, transfers some of its business to a third party. There are several reasons.