Insurer and Reinsurer
An insurance company protects both individual and corporate entities against losses arising from named perils. A reinsurance company protects the insurance company against either a specific large loss or against a series of smaller losses that could impact the financial strength of the insurance company.
There are mainly 2 types of reinsurance contracts:
1) Facultative Reinsurance is where a specific risk is shared with a panel of reinsurers.
2) Treaty Reinsurance refers to when a reinsurer agrees to accept a share of an entire portfolio of risk. Both types of reinsurance can be placed on a proportional or non proportional basis.
A reinsurance company can in turn also look to use both treaty and facultative reinsurance to protect its own portfolio of risk, such as for the Catastrophic Cover. This is called retrocession.