Legal Definitions - reinsurer

Definition: A reinsurer is an insurance company that takes on all or part of the risk that another insurance company has underwritten. In exchange for assuming this risk, the reinsurer receives a percentage of the original premium.

Example: Let's say that an insurance company has underwritten a policy for a largeconstruction project. The policy covers the risk of damage to the construction site and any injuries that may occur during the project. However, the insurance company may not want to take on the entire risk of this policy, so they turn to a reinsurer. The reinsurer agrees to take on a portion of the risk, say 50%, in exchange for 50% of the original premium.

Explanation: This example illustrates how a reinsurer can help an insurance company manage its risk. By taking on a portion of the risk, the insurance company can reduce its exposure and protect itself from potential losses. At the same time, the reinsurer can earn a profit by assuming this risk and charging a premium for its services.