Reinsurance is insurance for insurance companies. It’s a way of transferring or “ceding” some of the financial risk insurance companies assume in insuring cars, homes and businesses to another insurance company, the reinsurer. Reinsurance is a highly complex global business. U.S. professional reinsurers (companies that are formed specifically to provide reinsurance) accounted for about 7 percent of total U.S. property/casualty insurance industry premiums written in 2010, according to the Reinsurance Association of America.
The insurance marketplace has a number of ways to transfer risk, used mainly in commercial insurance. These include captives, risk retention groups, large deductible plans, catastrophe bonds, weather-based derivatives, sidecars and collateralized reinsurance. These mechanisms account for between 25 percent and 35 percent of the U.S. commercial market.
The U.S. insurance industry’s net premiums written totaled $1.1 trillion in 2016, with premiums recorded by life/health (L/H) insurers accounting for 53 percent and premiums by property/casualty (P/C) insurers accounting for 47 percent, according to S&P Global Market Intelligence.
P/C insurance consists primarily of auto, home and commercial insurance. Net premiums written for the sector totaled $533.7 billion in 2016.