Introduction of Financial Reinsurance

Financial reinsurance is an agreement between an insurer and a reinsurer whereby the insurer pays a reinsurance premium to the reinsurer and the reinsurer provides the insurer with a financial facility and bears the liability for the insurer's losses arising from the risk. The funds financed by the reinsurer are significantly related to the overall financial position of the insurer, and their cash flows should be greater than those of the insurer's traditional reinsurance arrangements. Financial reinsurance originated in the U.S. non-life insurance market as a way for non-life insurers to receive financial assistance from reinsurers to minimize financial losses due to overpayment of claims as a result of natural disasters.