Financial Reinsurance
What Does Financial Reinsurance Mean?
Financial reinsurance is a type of reinsurance arrangement where an insurance company pays premiums for a set period. At the end of this period, or if the insurance company experiences a covered loss, the full premium amount is returned to the insured company, minus a small profit margin retained by the reinsurer.
Insuranceopedia Explains Financial Reinsurance
The purpose of financial reinsurance is for insurance companies to set aside a portion of their profits as a safeguard to cover potential losses. By stashing profits through financial reinsurance, companies may also gain certain tax advantages that would not be available if they simply banked these funds in other ways.
In the event of significant losses, financial reinsurance can be crucial in helping an insurance company remain solvent while meeting large claim payouts.
