Insurance that insurance companies buy to protect themselves from large losses.
Reinsurance is how carriers manage their own risk: they transfer portions of their risk to reinsurers (like Munich Re or Swiss Re). This allows carriers to underwrite larger or riskier policies than their own capital would support.
Reinsurance is insurance that insurance companies purchase to protect themselves from large losses. When a carrier issues a policy, they transfer a portion of that risk to a reinsurer like Munich Re or Swiss Re. If a major claim occurs, the reinsurer pays part of it. This allows carriers to underwrite larger policies and more risky exposures than their capital alone would support.
Reinsurance operates behind the scenes and doesn't directly affect your policy terms or claims process. You file claims with your carrier, not the reinsurer. However, reinsurance indirectly benefits you by allowing your carrier to write policies with higher limits and take on more risk. It provides stability to the insurance market and helps carriers remain solvent after catastrophic events.
Insurance companies use reinsurance to manage their own risk exposure and protect their financial stability. Without reinsurance, carriers would need enormous capital reserves to cover potential large losses. Reinsurance lets carriers spread risk, underwrite policies beyond what their balance sheet could support alone, and remain solvent after catastrophic events like hurricanes or major liability claims.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
Last updated: July 2026.