This may be a silly question, but…
I may be having an interview for a tech position soon. The firm is a “reinsurer.” Unfortuantely, I’m not quite certain what that is. Do they insure insurance companies?
Zev Steinhardt
Yes.
I am an insurance company. I set something called a retention limit. Lets say it is $150,000. Next day I sell a $500,000 policy. I have a reinsurance contract with a reinsurer. Everything over my retention limit I cede to the reinsurer. The reinsurer then has its own retention limit. Lets say $200,000. $350,000 was ceded to me by Ins. Co. A. I keep $200,000, then I can cede the other $150,000 to a retrocessionare. The original insured person only has a contract with Ins. Co. A, and, more than likely, does not even know about Ins. Co.'s B & C. Once the insured passes away, Ins. Co. A pays the $500,000, then sends a bill to Ins. Co. B, who pays $350,000 to A, then sends a bill to C, who pays $150,000 to B.
There are lots of different kinds of contracts that can be used to set this up. The one I described above is most common. Sometimes Ins. Co. A and B have exclusive contracts, sometimes A can shop around for the best deal. There are premiums paid in each step. The insured pays A, who pays B, who pays C. This allows the risk (the original $500k) to be spread around to prevent any one company from having to pay too much. Despite competetion, there are reasons why one insurance company has a vested interest in another not becoming insolvent. Reinsurance is one way to help insure that.
From this link
Do to their position in the food chain, reinsurer are (almost always anyway) large, sophisticated insurance companies.
Here’s a decent primer:
http://www.swissre.com/INTERNET/pwsfilpr.nsf/vwFilebyIDKEYLu/ULUR-5FLBNT/$FILE/Einf_RV_en.pdf