Reinsurance, a common practice in the insurance industry, refers to the transfer of risk from one insurance company to another. The reinsurer, often a larger and more financially stable company, assumes part of the liability and premium from the insurer. This allows the insurer to reduce its risk exposure and potentially improve its financial stability. Reinsurance arrangements can vary in structure and complexity, but they ultimately serve to protect both the insurer and the reinsurer from potential losses.
