An insurance company is reinsured when it has purchased a reinsurance policy from a reinsurance company. Insurance companies buy this kind of insurance as a precautionary measure to make sure that all of their risks, not just those of their policyholders, are adequately covered.
Once an insurance company has transferred certain risks to a reinsurance company, the reinsurance company is responsible for providing financial reimbursement to the insured party in the event of a legitimate claim. Insurance companies who become reinsured, or who purchase reinsurance, have to pay a premium for it, just like regular policyholders do for standard insurance. Reinsurance can be crucial for ensuring that an insurance company does not go bankrupt in the event that many claims are filed at once.
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