Reinsurance Law and Legal Definition

Reinsurance is generally described as insurance for insurance companies, It is a method for a primary insurer to protect against unforeseen or extraordinary losses. Reinsurance aims to limit liability on specific risks, share liability when losses overwhelm the primary insurer's resources, and to help insurers protect their business against wide swings in profit and loss margins that occur in business cycles. For example, reinsurance helps maintain an insurance company's stabilty during management of natural disaster losses.

In a reinsurance contract the reinsurer charges a premium to indemnify another insurance company against all or part of the loss it may sustain under its policies. Reinsurance contracts may cover losses due to specific losses or a broad set of circumstances. Reinsurance's global aspects allow for the spreading of risk and access to broader capital markets to help cover losses.