Glossary

Reinsurance

Insurance purchased by an insurance company from another insurer (a reinsurer) to transfer part of its own underwriting risk, spreading exposure to large or correlated losses across additional capital.

Reinsurance is largely invisible to CRE borrowers and lenders in day-to-day transactions, but it underpins the stability and pricing of the primary insurance market they rely on: catastrophe-exposed lines like named-storm and earthquake coverage depend heavily on reinsurance capacity, and a hard reinsurance market (following a major catastrophe year, for example) flows through directly to higher primary property premiums, tighter terms, and reduced named-storm sublimits for CRE owners, even on properties that experienced no losses themselves. CRE professionals encounter the concept most directly when evaluating a captive insurance structure, since a captive's own claims-paying ability typically depends on reinsurance it purchases to cap its retained exposure, and when trying to understand why property insurance costs on coastal or catastrophe-exposed portfolios can swing significantly year to year for reasons unrelated to the specific asset's own loss history.