What is the term used for the reinsurance that a reinsurer purchases for itself?

The term used for the reinsurance that a reinsurer purchases for itself is known as retrocession. This practice typically involves a reinsurer transferring part of its risk to another reinsurer. The concept is essential in the reinsurance industry as it helps reinsurers manage their risk exposure and capital requirements effectively. By doing so, reinsurers can mitigate potential losses while ensuring that they can still cover the obligations to the original ceding insurer.

Understanding retrocession is crucial for anyone involved in the insurance and reinsurance fields, as it significantly impacts how risk is distributed among various parties. This mechanism allows reinsurers to spread their risk across multiple entities, thus enhancing their overall financial stability.