reinsurance. Insurance of all or part of one insurer’s risk by a second insurer, who accepts the
risk in exchange for a percentage of the original premium. — Also termed reassurance. [Cases:
“The term ‘reinsurance’ has been used by courts, attorneys, and textwriters with so little
discrimination that much confusion has arisen as to what that term actually connotes. Thus, it has
so often been used in connection with transferred risks, assumed risks, consolidations and mergers,
excess insurance, and in other connections that it now lacks a clean-cut field of operation.
Reinsurance, to an insurance lawyer, means one thing only — the ceding by one insurance
company to another of all or a portion of its risks for a stipulated portion of the premium, in which
the liability of the reinsurer is solely to the reinsured, which is the ceding company, and in which
contract the ceding company retains all contact with the original insured, and handles all matters
prior to and subsequent to loss.” 13A John Alan Appleman & Jean Appleman, Insurance Law and
Practice § 7681, at 479–80 (1976).
“The laying off of risk by means of reinsurance traditionally serves three basic purposes.
First, reinsurance can increase the capacity of the insurer to accept risk. The insurer may be
enabled to take on larger individual risks, or a large number of smaller risks, or a combination of
both…. Secondly, reinsurance can promote financial stability by ameliorating the adverse
consequences of an unexpected accumulation of losses or of single catastrophic losses, because
these will, at least in part, be absorbed by reinsurers. Thirdly, reinsurance can strengthen the
solvency of an insurer from the point of view of any regulations under which the insurer must
operate which provide for a minimum ‘solvency margin,’ generally expressed as a ratio of net
premium income over capital and free reserves.” P.T. O’Neill & J.W. Woloniecki, The Law of
Reinsurance in England and Bermuda 4 (1998).
excess reinsurance.Reinsurance in which a reinsurer assumes liability only for an amount of
insurance that exceeds a specified sum. See excess insurance under INSURANCE.
facultative reinsurance.Reinsurance of an individual risk at the option (the “faculty”) of the
reinsurer. [Cases: Insurance 3593.]
flat reinsurance.Reinsurance (esp. of marine insurance) that cannot be canceled or modified.
treaty reinsurance.Reinsurance under a broad agreement of all risks in a given class as soon
as they are insured by the direct insurer. [Cases: Insurance 3593.] [Blacks Law 8th]