Re-Insurance:
The insurance company gets parts of the risk insured with another insurance company, to avoid heavy financial losses is called as reinsurance.
Sometimes, when the insurer accepts insurance for a sum of money which is beyond his capacity to bear, it may pass on a part of the risk (or the whole of it) to another insurer and thus reduces his own liability arising in case of loss. This is called re-insurance.
Reinsurance consists of new insurance effected by a new policy in the same risk which was before insured in order to indemnify the under writer for his previous subscription and both policies remain in the existence at the same time.
Re insurance is thus an agreement between two insurers and the insured is not a party to such a contract.
In a contact of re-insurance, the original insurer is called re insured and the subsequent insurers are the reinsurance. The re-insures are liable to pay the amount of loss to the original insurer only after the original insurer has paid the amount to the ensured.
