Reinsurance

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The insurance purchased by an insurer on behalf of the company that originally wrote the policy. Reinsurance allows a second company to assume part of the risk and part of the premium on the original policy, freeing up the funds of the primary, or original, insurer so it can sell more policies.

Reinsurance works a bit differently than insurance, however. Instead of paying policyholder claims, reinsurers reimburse other insurers for claims paid. This increases the flow of money through those companies and helps them remain profitable. Many of the largest reinsurers are based abroad.

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