REINSURANCE

Insurance in which one insurer, the reinsurer, assumes all or part of the exposures covered by another insurer. A captive buys reinsurance from (or cedes it to) the reinsurer, who assumes it. A captive may reinsure, or assume reinsurance from, a fronting company. The captive may also be assuming reinsurance from other captives or pools.

The use of the same term, reinsurance, for “inward” and “outward” transactions is a common cause of confusion.