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Assumption reinsurance is a process or contract through which a reinsurer assumes liability of a policy claims issued by a primary insurer. The reinsurer substitutes the primary insurer and undertakes the liabilities of the primary insurer. Assumption reinsurance is also known as novation. Assumption reinsurance is regulated under the Assumption Reinsurance Act.
The following is an example of the state statute (Nebraska) explaining the purpose of the Act:
R.R.S. Neb. § 44-6202 states that the purpose of the Act is to provide for the regulation of the transfer and novation of contracts of insurance by way of assumption reinsurance. The act describes assumption reinsurance and establishes notice and disclosure requirements which protect and define the rights and obligations of policyholders, regulators, and the parties to assumption reinsurance agreements.