Reinsurance

Signifies insurance effected by an underwriter (or insurance company) upon the risk he has assumed by the policy he has made. Reinsurance does not mean merely insurance again; and it must not be confounded with double insurance, or second or other insurance, which expressions are used to denote that a person already insured by one company obtains from another a second policy or further policy upon the same property. As any practices of this sort promote frauds upon companies, by malting the total insurance money which may be gained by a wreck or a fire more than the value of the property lost, they are the companies and the conditions of the policies in use. But these are not contemplated by the expression reinsurance. That relates to a mode of protecting an insurer by an insurance in his behalf. There may be various reasons why a company is unwilling to continue subject to the full risk it has assumed by any or aU of its policies. The risk may, by later information, appear greater than was supposed when the policy was granted; or the company may wish to discontinue or change the character of its business; or its capital may have become impaired, so that it would not be able to respond in case of loss, unless entitled to some indemnity over. In any such case, the practice exists of the company's applying to another company to make a policy upon the risk which the first has assumed; and by this policy, if a loss under the original policy occurs, and the first company has to pay, the reinsuring company will be liable either in full or in the sum named by the policy of reiusurance, to reimburse its payment. Thus reinsurance of a risk does not enter into the original contract of insurance, or a Sect it, as between company and insured, at all, but raises a new contract between that company and another. Upon the decision of a company to relinquish business, it is very common to take out reinsurance upon all its risks; and this arrangement, i£ lawful, and safely and soundly made, practically transfers its responsibilities to the reinsuring corporation.