What is reinsurance?

Reinsurance is insurance bought by an insurer. The buyer is the cedent. The seller is the reinsurer. The policyholder still deals with the company that issued the policy. The reinsurer takes a defined share of that risk, or a layer above a retention, in exchange for premium. That sentence is the market. The operations problem is keeping the contract, the premium, the claims, and the year of account on the same definitions.

Cedents buy reinsurance for capacity, for shock protection, and for a result that does not swing with one event. They do not buy it so a third party can speak to the insured. Claims still land on the cedent first. Recoveries move later, against a wording, a slip, or a certificate that has to be found when the loss arrives.

Two placement shapes sit on every mailbox. Treaty reinsurance is automatic for a class that meets the treaty. Facultative reinsurance is optional, risk by risk. Mixing them is how a one-off limit gets posted to a treaty year. Name the shape on the file before you extract a field.

How it works

The cedent writes policies. Some of that risk stays on its own paper. Some of it is ceded. Proportional covers move a percentage of premium and of loss. Excess of loss responds when a loss, or an event, or an aggregate, exceeds an attachment, up to a limit. Retrocession is the same idea one step further: the reinsurer cedes onwards.

The contract is the system of record. A broker summary is not. A pricing memo is not. A spreadsheet named Final_v7 is not. If the share, the attachment, the hours clause, or the class is only in an email, it is a gap until the signed document says it.

Once something is written, reporting starts. Cedents send premium, claims, and commission files. Reinsurers post those rows against the wording they actually signed. That is bordereaux work, not a quarterly vibe. If a row cannot be mapped to a cited term, it does not get booked. It goes on an exception list.

Worked example

The fictional file used on this site is ACME Construction Ltd, acme.example, property. Period 1 January 2026 to 31 December 2026. Slip page 2 states an occurrence limit of USD 10,000,000. Slip TIV is USD 42,000,000. The schedule of values totals USD 47,100,000 because a warehouse was added after the slip was typed. The hours clause is not in the pack.

If this risk is facultative, those figures live on a slip and, if someone writes, on a certificate. If the same insured sits inside a property treaty, the policy is a row on a bordereau that still has to match class, territory, and period in the wording. In both cases the TIV split is a conflict, not a rounding error. Averaging to USD 44,550,000 invents a third number that neither document contains.

What goes wrong

Reinsurance fails in files, not in diagrams. The covering email restates the limit. The slip disagrees. The accountant books the email. A class excluded by the treaty still appears on the premium sheet. A facultative certificate issues on a share that is not the written line. A catastrophe event is split or joined because nobody can find the hours clause.

Software that summarises the zip into a paragraph will hide those fights. The honest pack shows spans, gaps, and conflicts. Humans still decide whether the warehouse is on cover, what to quote, and whether to bind.

Related reading

Cedent reporting sits on cedent operations. The inbox-to-pack loop is reinsurance AI.