What is Reinsurance and what is a Reinsurance Intermediary?

The simplest way to think about Reinsurance is, “insurance for insurance companies.” More specifically, reinsurance is a contract between an insurance company and reinsurance company; a tool insurance companies use to manage risks and limit the amount of capital required to support those risks. Reinsurers are typically larger, more established companies and they often specialize in particular types of risks or lines of business. Reinsurance Intermediaries act as go-betweens for reinsurers and insurers and are required to be licensed in most states. There are two types of reinsurance intermediaries: intermediary brokers and intermediary managers. An intermediary broker is an entity that solicits, negotiates, or places reinsurance on behalf of a ceding insurer without having the authority to bind reinsurance on behalf of the insurer. By contrast, intermediary managers have binding authority from the reinsurers and in that capacity effectively act as managing general agents or underwriters. Because of their specialized expertise, reinsurance intermediaries often help insurers manage their exposure to catastrophic events or riskier classes of business. This can include setting up a catastrophe fund, transferring certain coverages to reinsurers, or creating excess layers of coverage to protect the insurer’s bottom line.