Reinsurance is an arrangement according to which a company, the “reinsurer”, commits in providing compensation to an insurance company, the “seller”, for all or part of the risk for which the latter subscribes one or more insurance policy(-ies). Reinsurance is among the core activities of any commercial insurer.
Reinsurance reduces an insurer’s risk exposure and is a useful source of funding and actuary experience. This practice may help to stabilise the profits and protect them against strong fluctuations in financial results from one year to the other.
This enables small insurers to share the risk with other operators located in other regions or abroad by pooling the risks sufficiently, thanks to the fact that the risk is mutualised among many insurers.
Despite the definite advantages of reinsurance, it is still not a frequent element of microinsurance, yet it would help to stimulate both the development of microinsurance and the growth of existing operations.
Source: Text based on Dossier thématique Micro-assurance ©2007, www.lamicrofinance.org