Obligatory Reinsurance

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Definition of 'Obligatory Reinsurance'

Obligatory reinsurance is a type of reinsurance that is required by law or regulation. It is often used to protect insurers from catastrophic losses.

There are a number of different types of obligatory reinsurance. One common type is called excess of loss reinsurance. This type of reinsurance covers losses that exceed a certain amount. For example, an insurer might purchase excess of loss reinsurance that covers losses that exceed $1 million.

Another type of obligatory reinsurance is called quota share reinsurance. This type of reinsurance requires the reinsurer to share a certain percentage of the insurer's losses. For example, an insurer might purchase quota share reinsurance that requires the reinsurer to share 50% of the insurer's losses.

Obligatory reinsurance can be a valuable tool for insurers. It can help to protect them from catastrophic losses and can help to ensure that they are able to continue to provide insurance coverage.

However, obligatory reinsurance can also be expensive. It can increase the cost of insurance for consumers. Additionally, it can limit the amount of risk that insurers are willing to take on.

Overall, obligatory reinsurance is a complex and important topic. It is important for insurers, reinsurers, and consumers to understand the different types of obligatory reinsurance and the implications of these types of reinsurance.

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