Definition of "Reinsurance"

Acceptance by one insurer (the reinsurer) of all or part of the risk or loss underwritten by another insurer (the ceding insurer).

A form of insurance that insurance companies purchase from other insurance companies. This is done to reduce the possible maximum loss on either an individual risk or a group of risks.

In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.