Reinsurance is insurance for insurers themselves. A company that has accepted a large risk — a plant, an aircraft, a bridge under construction — passes part of its liability on to other insurers and reinsurers and pays them part of the premium it has received. The policyholder usually does not see this, yet it is reinsurance that allows the market to accept risks worth billions of rubles.

How reinsurance differs from insurance

The main difference lies in the parties to the contract. A reinsurer does not enter into a contract with the policyholder and has no direct obligations to them: its counterparty is the insurance company, called the reinsured or the cedent. Reinsurance terms may differ noticeably from those of the original policy — in the share of risk, premium, deductibles and exclusions.

For the client, one rule of Article 967 of the Civil Code of the Russian Federation matters: if a risk is reinsured, the insurer under the original contract remains fully liable to the policyholder. The client receives the payout from their own insurance company, and settlements with reinsurers are that company's internal business.

Why an insurer needs reinsurance

  • Financial stability. A single large loss must not endanger the whole company and the payouts to its other clients.
  • Capacity. An insurer can accept a risk larger than its own funds allow, keeping only the part it is prepared to cover itself (its retention).
  • Catastrophe protection. A flood, hurricane or earthquake causes many losses at once. Reinsurance smooths out such peaks.
  • Expertise. Large reinsurers build up experience in assessing complex risks and share it with partners, from underwriting to claims handling.

Which risks are reinsured

Most often these are large property risks of industrial enterprises, energy, oil and gas facilities, aviation and space risks, ships and cargo, construction and erection risks, and the liability of large companies and their executives. Mass retail lines are reinsured less often — usually through treaties that protect the entire portfolio against catastrophic events.

Forms and methods of reinsurance

Facultative and obligatory

Facultative reinsurance means each risk is offered separately; the reinsurer studies it and may accept or decline. Unique and large objects are placed this way. Obligatory (treaty) reinsurance is a contract concluded in advance under which all risks of a certain portfolio are automatically ceded within agreed limits.

Proportional and non-proportional

  • Quota share — a fixed share of each risk and the same share of the premium is ceded.
  • Surplus — the part of the risk exceeding the insurer's retention is ceded.
  • Excess of loss — the reinsurer pays the loss above an agreed amount (the priority) up to a limit.
  • Stop loss — protection against the portfolio's annual loss ratio exceeding a set level.

A reinsurer may in turn pass part of the accepted risk further on — this is called retrocession. In this way a large risk is spread among dozens of market participants.

Reinsurance in Russia

Reinsurance is governed by the Civil Code of the Russian Federation and Law of the Russian Federation No. 4015-1 "On the Organisation of Insurance Business in the Russian Federation"; supervision is carried out by the Bank of Russia. Reinsurance may be conducted by insurers holding the relevant licence and by specialised reinsurance companies.

A special role is played by JSC Russian National Reinsurance Company (RNRC), established by the Bank of Russia. An insurer ceding risks to reinsurance must offer RNRC 50% of the obligations ceded under its original contracts (Article 13.3 of Law No. 4015-1), and RNRC may accept them, reduce its share or decline. In addition, RNRC accepts the risks of organisations subject to foreign sanctions. After 2022, some foreign reinsurers scaled back their work with Russian risks, and the importance of domestic reinsurance capacity has grown considerably.

What this means for the policyholder

If you are insuring a large object, it is worth discussing a few questions with the insurer in advance:

  • what part of the risk stays with the insurance company and what part is placed in reinsurance;
  • whether the reinsurance terms match those of your policy — especially exclusions, deductibles and sanctions clauses;
  • how long the placement will take and whether it may change the price or scope of cover.

Polis Re specialists help prepare risk information and compare offers from different insurers. Learn more in the Reinsurance section and about insuring corporate property and construction and erection risks. Terms are explained in the glossary; to request a quote, use the request form.