• Reinsurance is the insurance that an insurer hires to protect against the risks assumed with the sale of policies.
• The insurer transfers all or a portion of its risks to the reinsurer.
• It is an instrument used by companies to diversify risks.
Always, or almost always, there is a risk there is usually insurance that covers it . Through a policy insurers assume the expenses derived from certain incidents (such as major natural catastrophes or air accidents, for example), within the limits established in the contract. The company that is selling a policy is assuming a risk and one of the ways it has to protect itself is to re- insure it , that is, by hiring a policy that covers it.
What is reinsurance?
Reinsurance is insurance insurance . That is, it consists of the protection that an insurer contracts with another (which receives the name of reinsurer), to cover the risk that previously has been secured by the sale of a certain policy. With this contract you can cover all or only part of the cost that you would have to face if the loss occurred. In other words, reinsurance consists of double insuring the same risk by two different parties (the user who insures a specific asset and its insurer, who is, at the same time, reinsured and insurer).
Purpose of the reinsurance
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By contracting a reinsurance, an insurer protects its assets from a possible debt that it could incur when making the obligations acquired with its clients in an insurance contract . It is the reinsurer, as indicated in the Insurance Contract Law in its article 77, which is obliged to repair "within the limits established in the Law and in the contract" the debt born in the estate of the reinsured.
The objective of the insurer to sign one of these contracts is to reduce the amount of losses arising from the loss of their customers and avoid solvency problems.
Position of the insured against reinsurance
The contract that a direct insurer (company with which the policyholder has the contractual relationship) subscribes with another or others does not affect the pact that it maintains with its insured. The person who has subscribed a policy may demand from his company the total compensation. Of course, the insurer will not be affected his right of repetition against the reinsurers, that is, they can demand that they pay the amount they have paid to settle the claim covered by the policy.
The insured may not directly demand from the reinsurer either compensation or a benefit . However, in the event that an insurer is in a process of liquidation (voluntary or forced) will be insured those who have special privilege on the credit balance (positive) that throw the account of the insurer with its reinsurer.