Traditional risk reinsurance is reinsurance that use capital from traditional sources, such as shareholders. This type is popular among major reinsurers in the industry. It is an alternative to non-traditional risk reinsurance, wherein capital comes from non-traditional sources, such as pensions funds and family offices.
An example of traditional risk reinsurance would be a reinsurance company that issues stock and uses the funds generated by the shareholders purchasing these stocks to help back its risks. Premiums also help cover potential claims. This type of risk reinsurance is known as "traditional" because it has been the more preferred and established method that key reinsurers have used historically. It is also more in line with the "traditional" capital model, which features the selling of equity to generate funds for the business.
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