Reinsurance
What is reinsurance?
Reinsurance is insurance that insurance companies purchase for themselves. Just as an individual buys insurance to transfer the financial risk of a major loss to a carrier, insurance carriers buy reinsurance to transfer a portion of their accumulated risk to the global reinsurance market. This allows carriers to write policies beyond what their own capital base could support alone and limits their financial exposure to any single catastrophic event or geographic concentration of claims.
How does treaty reinsurance differ from facultative reinsurance?
The mechanics work in two broad forms. Treaty reinsurance covers an entire book of business automatically: a carrier cedes a fixed percentage of every homeowners policy it writes, and the reinsurer absorbs that share of every loss without reviewing individual policies. Facultative reinsurance is arranged policy by policy for unusually large or complex risks, such as a coastal commercial property with high replacement value. Most Georgia homeowners are backed by treaty arrangements they will never see or interact with directly.
Why do reinsurance losses raise premiums for Georgia homeowners?
The reinsurance market is dominated by a small number of large global organizations that absorb vast quantities of catastrophe risk from carriers worldwide. After a major catastrophe year, a severe hurricane season, large wildfires, or a destructive earthquake, reinsurance losses can run into the tens of billions of dollars. To rebuild their capital reserves, reinsurers raise their rates. Carriers, now paying significantly more for their own risk transfer, pass those cost increases on to policyholders in the affected product lines and states. This is why a homeowner in Georgia with no claims history can still see a substantial premium increase after a year of major losses concentrated in Florida or along the Gulf Coast.
How does Georgia’s geography factor into reinsurance costs?
Georgia’s exposure compounds this dynamic. The state sits in the path of tropical systems that move inland from the Gulf and the Atlantic, making Southeast concentration risk a genuine concern during underwriting. When a single season generates large insured losses across the region, the repricing filters through reinsurance treaties and surfaces on renewal notices the following year. For example, after a season that generates significant insured losses across Georgia, Alabama, and the Florida Panhandle, carriers writing across all three states simultaneously face higher reinsurance costs than those with more diversified geographic exposure.
What does the reinsurance cycle mean for policyholders?
Understanding reinsurance helps explain market cycles that can seem disconnected from your personal situation. When premiums rise sharply across an entire state or product category, the driver is typically reinsurance cost and accumulated loss ratios, not anything specific to your property or claims record. It also explains why carriers periodically pull back from certain geographies when reinsurance for that concentration becomes too expensive or unavailable. The admitted versus non-admitted carrier FAQ covers what happens when a carrier exits a market and how coverage options shift as a result. For example, after several consecutive high-loss years in coastal Georgia, some admitted carriers stopped writing new business in certain zip codes, directing homeowners toward surplus lines carriers at higher rates. The carrier selection FAQ addresses how reinsurance backing factors into evaluating carrier stability. A coverage review can clarify what is driving a renewal increase; see what the review involves before scheduling.