Reinsurance

This is when one insurance company assumes some or all of the risk undertaken by another insurance company. It can be more then one reinsurer on a particular piece of coverage.

This insuring of one insurance company's piece of business by another insurance company (reinsurer) is to give some protection against large losses on cases it has already insured.

The terrorism of 911 caused many reinsurance companies to suffer large losses due the extent and severity of the disaster. Resulting rates went up and for some classes of commercial insurance it became difficult to find insurance at premiums similar to the year before the incident.

When you need higher limits then normal for example $2 million liability increased to $5 million or $10 million liability then reinsurance may factor into the rates charged.

Reinsurers will examine the loss ratios of the insurance company and this is part of their rating system.