Legal Definitions - flat reinsurance

Definition: Flat reinsurance is a type of reinsurance where the reinsurer accepts all or part of the risk of an insurer in exchange for a percentage of the original premium. This type of reinsurance cannot be canceled or modified.

Example: A marine insurance company insures a cargo ship for $10 million. To reduce its risk, the insurer purchases flat reinsurance from another company. The reinsurer agrees to accept $5 million of the risk in exchange for a percentage of the premium. If the ship sinks and the insurer pays out $10 million in claims, the reinsurer will pay $5 million to the insurer.

This example illustrates how flat reinsurance works. The insurer transfers part of its risk to the reinsurer, who agrees to pay a portion of any claims that arise. This reduces the insurer's exposure to losses and helps to ensure its financial stability.