Reinsurance is a risk management strategy where a primary insurer transfers risk to a reinsurer. This allows the primary insurer, also known as the ceding company, to protect itself against large losses and maintain solvency. The reinsurer takes on a portion of the risk in exchange for a premium. This helps spread the risk across multiple entities and reduces the financial burden on the ceding company. Ultimately, reinsurance is a crucial tool for insurers to manage risk and ensure their long-term stability.
