What Does Unauthorized Reinsurance Mean?
Unauthorized reinsurance is when a reinsurer attempts to do business in an area or with an insurance company that is prohibited by law. There are regulations for reinsurance just as there are for insurance. If a reinsurer does not follow these regulations, then it could be in danger of providing unauthorized reinsurance
Insuranceopedia Explains Unauthorized Reinsurance
Unauthorized reinsurance can constitute a serious legal problem. For example, say a reinsurer in Maine only has legal permission to do business with insurance companies in Maine. If this reinsurer tries to do business with an insurance company from Louisiana, this would be illegal and could result in a lawsuit.
Insurance companies who buy unauthorized reinsurance from reinsurers can quickly find themselves responsible for all of the claims that they thought they had covered by their reinsurance. Unauthorized reinsurance is not actually legitimate and therefore provides no actual coverage. This could amount to heavy financial losses for the insurance company.