Fundamentals of Property and Casualty Reinsurance: Introduction

Reinsurance is a transaction in which one insurance company indemnifies, for a premium, another insurance company against all or part of the loss that it may sustain under its policy or policies of insurance.  The insurance company purchasing reinsurance is known as the ceding insurer; the company selling reinsurance is known as the assuming insurer, or, more simply, the reinsurer.  Described as the "insurance of insurance companies," reinsurance provides reimbursement to the ceding insurer for losses covered by the reinsurance agreement.  The fundamental objective of insurance, to spread the risk so that no single entity finds itself saddled with a financial burden beyond its ability to pay, is enhanced by reinsurance.

Although to many reinsurance is an unknown aspect of the insurance industry, its roots can be traced as far back as the late 14th century.  Since that time, reinsurance has evolved into the business it is today.  While the early focus of reinsurance was in the lines of marine and fire insurance, it has expanded during the last century to encompass virtually every aspect of the modern insurance market.

Reinsurance can be purchased from three distinct sources:  reinsurance companies located in the United States, reinsurance departments of U.S. primary insurance companies, and alien reinsurers that are located outside the U.S. and not licensed here.  The ceding insurer may purchase reinsurance directly from a reinsurer or through a broker or reinsurance intermediary.

Reinsurance may be written on either a proportional basis or excess of loss basis.  A reinsurance contract written on a proportional basis simply prorates all premiums, losses and expenses between the insurer and the reinsurer on a pre-arranged basis.  The proportional approach is used extensively in property reinsurance.  Excess of loss contracts, on the other hand, require the primary insurer to keep all losses up to a predetermined level of retention, and the reinsurer to reimburse the company for any losses above that level of retention, up to the limits of the reinsurance contract.  In simplest terms, a retention is analogous to the deductible a policyholder may have on a personal insurance policy, such as an automobile or homeowner's policy.

NEXT: Purposes of Reinsurance

(The complete Fundamentals of Reinsurance with a Glossary of Reinsurance Terms is also available for the Kindle and in hard-copy at Amazon.)

By far and away the most well rounded and useful Cat-focused industry conference out there. Perfect for all levels within the industry. From the conference content, the presenters and the attendees, this conference is a can’t miss for those interested in expanding their knowledge and learning more about cat related insurance and reinsurance modeling topics Nick DiMuzio, Everest

"Fantastic, enriching conference - brilliantly planned and run, illuminating talks and excellent opportunities for networking across multiple areas of catastrophic risk.” Gary Ackerman, University at Albany

“From a treaty underwriter's point of view, RAA presented relevant topics related to today's macro events. Scientific presentations provided insight that I can incorporate in underwriting and share with my clients.” Eric B. Silberman, Munich Re

"Great conference with some of the biggest names in the business presenting their work. What more could you ask for?” Ron Nash, Nash Consulting

“A perfect introduction to the world of reinsurance. Relevant topics, great speakers and the opportunity to network with industry peers makes this a must go event.”
Tom Barrett, Everest Re

Demystifying Reinsurance was an excellent tool to clearly understand and break down the basics. Very good class and recommend it for beginners and even as a refresher course for the intermediate student.”
Chenessia West, TransRe

“Re Basics is the ideal opportunity whether an industry professional or student of insurance to understand the in and outs of reinsurance while being able to network with persons spread across the whole industry.”
Darius Zuill, Bermuda Monetary Authority

“This has been the best reinsurance seminar that I have been to! Whether a reinsurance seasoned vet or new to the field, this is an engaging seminar that addressed specific issues of the reinsurance market.”
Michelle Thimm, Church Mutual Insurance 

“Re Underwriting provided a comprehensive and interesting overview of underwriting in the current market with a major (and interesting) focus on trends. Very useful for underwriting and non-underwriting alike.”
DeVika Bourne, PartnerRe

“Very informative experience, and a great way to keep up to date on current underwriting events and trends.”
Steven Whalen, Aspen Re

“Broadened my business horizon as well as my overall knowledge.”
Nicole Frisch, Sompo International Reinsurance, Zürich 

“The panels and presentations were thought provoking and fascinating as numerous topics were covered affecting the industry. I’m leaving the conference with a greater insight of the future market.”
Brittany de Frias, MS Amlin 


“RAA Re Finance was the first RAA seminar I attended, and I was thoroughly impressed with the speakers and content. I learned a great deal from the presentations and intend to bring some new ideas back to my company and share with the team!”
Taylor Robinson, ICW Group

“Fantastic slate of instructors who thoughtfully walked us through financial reporting and other aspects of reinsurance finance. They used terminology that non finance people (lawyers) could understand. Really great program.”
Steven Bazil, The Bazil Group

“If you are in Reinsurance Accounting/Finance, you need to take this course to help you with your job.”
Frank Borawski, Markel  

“The speakers were excellent! There is something to be said about a person, and in this case a group of people, who can take time away from their busy schedules and explain to everyone something they feel passionate about in a manner that's understandable. My only complaint is that I wish we had more time with them.”
Jessica Mieles, Sompo International

“The RAA ReContracts is the most comprehensive reinsurance contract wording training available in the U.S. market.”
David Kragseth, Guy Carpenter   

“The course was very helpful in addressing different viewpoints and important things to consider in contract design and review.”
Andy Martin, AmericanAg 

“The RAA contract course was very informative and interesting. It covered a wide range of Reinsurance Contracts Types. In my Reinsurance Career, I have had the opportunity to work on a limited type of contracts, so I learned a lot.”
Vivian Castro, Arch Insurance Company 

“The RAA Contracts course provides the opportunity to engage with relevant topics, taught by industry experts, in both seminar and small group environments. The course material and industry experts provide an understanding on a wide range of subjects.” 
Kevin English, LMRe

“Participation in Re Claims should be mandatory for all P&C reinsurance underwriters. It’s truly an eye-opener, providing an in-depth look from a claims manager’s perspective on what happens to the business that we underwrite. There are lots of do’s and don’ts to pay attention to. Re Claims answers all the hard questions."  Michael Delacruz, China Re P&C

“I absolutely love this program. I learned so many new things. Reinsurance from the industry’s top executives, interactive activities, interesting panels, and innovating presentations makes for an intriguing few days. Well worth the time and money.” Chenessia West, TransRe

“As a reinsurance attorney I find Re Claims highly valuable to stay abreast of emerging issues. Also, being walked through practical case studies is extremely helpful in creating a thorough understanding of how contracts work.” Steven Bazil, The Bazil Group

Become a Re Scholar!

The Re Ed Institute's Re Scholar Program seeks to recognize those who achieve a high standard of reinsurance education by completing the Re Scholar curriculum. Learn More.

Become a Re Ed Sponsor

The RAA’s Reinsurance Education Institute programs attract professionals from the world’s leading insurance/reinsurance companies, brokers, law firms and consulting firms. Interested in sponsoring? Contact Marsha Cohen.