Reinsurance takes place among insurers. When one insurer has been asked to insure a risk of substantial proportions, it may submit applications to other insurers to share in the risk for a percentage of the premiums, and the premiums may be lower than if one insurer was insuring the entire risk.
There are two types of reinsurance: "treaty" and "facultative." Insurance companies operate, as between themselves, with agreements or "treaties." By these treaties, the insurers agree between themselves to participate to insure substantial risks in various percentages at specific dollar figures. Treaty insurance is more general, covering an entire business or operation, rather than a specific risk.
Facultative, however, is more risk specific. When an insurer is seeking to insure a large risk, perhaps a specific task rather than a general business operation, it may arrange with other insurers to share in that risk.
There may be many layers of reinsurance, and more than one insurer in a layer, tho generally each reinsurer represents another layer.
As with other insurance policies, there are many diverse issues. If you have a problem with a substantial risk and the operation of the insurance policies, please do not hesitate to call or email us.