Unauthorized Reinsurance
What Does Unauthorized Reinsurance Mean?
Unauthorized reinsurance occurs when a reinsurer conducts business in a prohibited area or with an insurance company it is not legally allowed to engage with. Just as there are regulations governing insurance, reinsurance is also subject to strict legal requirements. If a reinsurer fails to comply with these regulations, it risks engaging in unauthorized reinsurance.
Insuranceopedia Explains Unauthorized Reinsurance
Unauthorized reinsurance can lead to significant legal and financial problems. For example, suppose a reinsurer in Maine is only authorized to conduct business with insurance companies in that state. If this reinsurer attempts to do business with an insurance company in Louisiana, it would be acting illegally and could face legal action.
Insurance companies that purchase unauthorized reinsurance may find themselves solely responsible for all the claims they believed were covered. Since unauthorized reinsurance is not legally valid, it provides no real coverage, potentially resulting in substantial financial losses for the insurance company.
