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LSDefine
Simple English definitions for legal terms
flat reinsurance
Read a random definition: reinsurance treaty
A quick definition of flat reinsurance:
Flat reinsurance is when one insurance company transfers all or part of its risk to another insurance company in exchange for a percentage of the original premium. The second insurance company accepts the risk and is solely liable to the first insurance company, which retains all contact with the original insured. Flat reinsurance is often used in marine insurance and cannot be canceled or modified once agreed upon.
A more thorough explanation:
Definition: Flat reinsurance is a type of reinsurance where the reinsurer accepts all or part of the risk of an insurer in exchange for a percentage of the original premium. This type of reinsurance cannot be canceled or modified.
Example: A marine insurance company insures a cargo ship for $10 million. To reduce its risk, the insurer purchases flat reinsurance from another company. The reinsurer agrees to accept $5 million of the risk in exchange for a percentage of the premium. If the ship sinks and the insurer pays out $10 million in claims, the reinsurer will pay $5 million to the insurer.
This example illustrates how flat reinsurance works. The insurer transfers part of its risk to the reinsurer, who agrees to pay a portion of any claims that arise. This reduces the insurer's exposure to losses and helps to ensure its financial stability.