What Does Reinsurance Premium Mean?
A reinsurance premium is an amount of money that an insurance company pays to a reinsurance company to receive a specific amount of reinsurance coverage over a specified period of time.
Insurance companies purchase reinsurance to hedge their risks. In other words, reinsurance is a type of fail-safe for insurance companies in case too many claims are filed at once.
Insuranceopedia Explains Reinsurance Premium
Insurance companies without enough reinsurance can go bankrupt if they receive too many claims at once. Reinsurance protects insurers in case policyholders file so many claims that they have to pay out more money than they can afford.
To receive reinsurance coverage, an insurance company has to pay a reinsurance premium to the reinsurer. The amount of reinsurance desired will dictate the price of the reinsurance premium. In general, the more insurance needed, the higher the premium.