Reinsurance transfers part of an insurer’s claim liability to another insurer. If aggregate claims are , a retained payout with leaves the reinsurer with . Quota share reinsurance retains a fixed fraction, whereas aggregate stop loss reinsurance retains losses only up to a fixed aggregate threshold.
Reinsurance is a financial arrangement in which an insurance company (the "ceding company") transfers a portion of its risk to another insurance company (the "reinsurer"). The primary purpose of reinsurance is to reduce the risk exposure of the ceding company by spreading risk among multiple parties, thereby enhancing the stability of the insurance market and ensuring that insurers can meet their financial obligations to policyholders.
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