What is Reinsurance?

One of the founding executives of Bermuda-based Ironshore, Inc., Mitch Blaser serves the company as its chief operating officer (COO), a post he has held since 2007. Mr. Blaser also holds the position of CEO of the firm’s Bermuda subsidiary, which handles all Bermuda-oriented business as well as government and community relations. Prior to his involvement with Ironshore, Mitchell Blaser served as chief financial officer for the Americas division of Swiss Re, one of the world’s largest reinsurers.

Nearly all insurance companies engage in reinsurance, which is a risk mitigation practice. In its simplest form, it is the assumption of part or all of an insurance contract to a third party in exchange for a premium. There are two basic kinds of reinsurance contract, treaty and facultative.

Treaty reinsurance is an ongoing contract under which the reinsurance company covers a set amount of the insurance company’s liabilities. This might be all of a company’s policies of a particular type, such as whole life contracts or health insurance policies. Another type of treaty reinsurance involves the reinsurance company covering a portion of the insurance company’s obligations, either as a percentage or a set dollar amount.

Facultative reinsurance, on the other hand, transfers part or all of the liability of a single insurance contract from the insurance company to the reinsurance company. This type of reinsurance is much less common than treaty reinsurance, and generally happens only in the case of an extremely large policy. In some cases, an insurance company might sell a package of policies, such as to an employer, and have an entire segment reinsured. For instance, a company that deals primarily in life insurance may sell a package that includes health insurance, and reinsure the entire health policy to a company more expert at administering it.

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