Reinsurance

Reinsurance is insurance for insurers. An insurer, called the ceding company, transfers part of the risk on the policies it writes to a reinsurer, which agrees to pay some of its losses in exchange for a share of the premium. The NAIC describes it as a transaction in which the reinsurer covers all or part of the primary insurer's losses or loss adjustment expenses.

There are two broad types. Under proportional, or quota share, reinsurance, the reinsurer takes a fixed percentage of premiums and losses: with a 30% quota share, it pays $30,000 of a $100,000 claim and receives 30% of the premium. Under excess-of-loss reinsurance, it pays only above a set amount, such as everything over $1 million on a single claim or catastrophe (hypothetical figures). Reinsurance lets smaller insurers write more policies than their own capital would support, and it protects all insurers from very large verdicts and from catastrophes such as hailstorms and hurricanes.

Drivers never deal with reinsurers directly; your policy and claim stay with your insurer. But reinsurance costs feed into premiums, and when reinsurers raise prices after heavy losses, insurers pass some of that on. Some residual market arrangements, such as the North Carolina Reinsurance Facility, use the same idea to share the cost of high-risk drivers. See why car insurance got more expensive, and where prices stand in 2026.