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.
Accounting is a system of recording, analyzing and verifying an organization’s financial status. In the United States, all corporate accounting is governed by a common set of accounting rules, known as generally accepted accounting principles, or GAAP, established by the independent Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC) currently requires publicly owned companies to follow these rules. Over time, both organizations intend to align their standards with International Financial Reporting Standards (IFRS).
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.