Summary:  Reinsurance is an integral part of the property-casualty industry, but its principles may be confusing to those who do not work directly in the area. This treatment provides an overview of the reinsurance process and industry. For a glossary of reinsurance terms, see Reinsurance Glossary.

However complex reinsurance might appear, it is basically a means by which the exposures of individual insurers are redistributed to other insurers. It is insurance for insurers. An insurer (called the "primary" or "ceding" company) transfers (or "cedes") some or all of its exposures and premium to a reinsurer. The reinsurer then agrees to indemnify the ceding company for a predetermined type and amount of losses sustained. In turn, reinsurers may elect to further reinsure some of the exposures they have assumed through the use of retrocession transactions. This is reinsurance for reinsurers. Retrocession agreements among insurers serve to further distribute the loss exposures and premium throughout the insurance industry.

Reinsurance also is used to back up self-insurance and risk retention group programs. It is used in such programs to guard against catastrophic single occurrence or aggregate losses and caps the amount the self-insurer or risk retention participant or group must retain. In some cases, businesses that deal with self-insurers or risk retention groups require that financially sound reinsurance backs up the program(s).