VATINS3215 - Types of insurance: reinsurance: general

All the Items in Group 2 contain a specific reference to ‘reinsurance’ or ‘re-insurers’. There is no legal definition of reinsurance but the object of it is for an insurer to obtain partial or complete insurance from another insurer against a liability arising from a primary insurance contract. A reinsurance contract is a distinct and separate contract.

Reinsurance is a means whereby an insurer can manage its exposure to the risk of claims being made against it. If an insurer were to face potentially huge claims with no protection, the size of the pay-out could have a serious impact on its financial position. In order to minimise the chances of this, the insurer will have a programme of separate insurance policies which protect its risk. This insurance of an insurer’s own risks is called ‘reinsurance’.

Typically, an insurance company may decide to reinsure whole groups or layers of insured risks as a prudent means of containing its exposure. This will entail entering into contracts with a variety of re-insurers.