This risk division method involves the insurers using the reinsurance method. Reinsurance is a technique of vertical distribution of insured risks by which an insurer, or "cedant" to the reinsurance contract (reinsurance treaty, facultative reinsurance...), cedes to a third party insurance company: the reinsurer, all or part of one or several insured risks. The reinsurer can be a professional whose exclusive activity is the reinsurance of insurance companies, or a "mainstream" insurance company, offering this type of product.
Through the reinsurance mechanism, the reinsurer undertakes, in return for the payment of a premium, to compensate the ceding company for the losses incurred as a result of the realization of the reinsured risk in the proportions ceded to the reinsurance contract. The ceding company is the only one bound to its insureds. It is also the only one bound to the reinsurer by the reinsurance contract. Finally, and as a consequence, the policyholder of the insurance contract and the reinsurer have no contractual relationship.
The reinsurance method presents many benefits for the cedent. Depending on the contractual options chosen, the cedent can carefully enter new markets and develop their expertise within. The cedent can considerably increase their underwriting capacities by reducing their risk exposure. The cedent is also able to underwrite substantial risks such as the construction of transport superstructures: space vehicle launch pads, even the space vehicles themselves…
