What Is Reinsurance?
Reinsurance is insurance for insurance companies. An insurer (the "ceding" company) transfers part of its risk to another company (the "reinsurer") in exchange for a share of the premium. By spreading risk, reinsurance lets insurers take on large or concentrated exposures — like coastal property — without risking insolvency from a single catastrophic event.
How Reinsurance Works
- The primary insurer cedes a portion of its risk and premium to a reinsurer
- When large claims hit, the reinsurer reimburses the insurer for its share
- This stabilizes the insurer's finances and expands the coverage it can offer
Why Reinsurance Matters in Florida
Reinsurance is especially critical in Florida because of hurricane risk. Florida property insurers rely heavily on reinsurance — and on the state-created Florida Hurricane Catastrophe Fund — to cover catastrophic storm losses. The cost and availability of reinsurance directly affect Florida homeowners: when global reinsurance prices rise, primary insurers' costs rise, which can push up premiums and influence which companies write policies in the state. While reinsurance is a contract between insurers, its effects reach every Florida property owner who buys coverage.
Related Terms
- Replacement Cost — A coverage standard in the underlying policies
- Subrogation — Another risk-shifting concept in insurance
- Ordinance or Law Coverage — A coverage affected by catastrophe risk
Barnes Walker
Barnes Walker's attorneys handle Florida property-insurance coverage and claim disputes for owners. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC