At its core, reinsurance involves the transfer of a portion of the risk assumed by an insurer to another party, known as the reinsurer. This transfer can occur on various levels, spanning individual policies, specific types of risks, or even the entirety of an insurer’s portfolio. Reinsurers assume this risk in exchange for premiums paid by the primary insurers, creating a symbiotic relationship that enables the insurance industry to operate with a more substantial risk-bearing capacity. The primary goal of reinsurance is to enhance financial stability, allowing insurers to underwrite policies with confidence, knowing that they have a safety net in place to handle catastrophic losses or unforeseen events.

According to Article 44 of the constitution, the purpose of establishing insurance companies in the private sector is to improve the insurance industry in the country, enhance competition and efficiency in the insurance market, raise public welfare, improve social and economic security, expand the role of insurance in economic growth and prevent losses to society. On the other hand, the establishment of a reinsurance company results in an ongoing increase in the insurance penetration rate, a quantitative and qualitative increase in the risks covered by direct insurance companies, an increase in the level of insurance premiums in the market and the development of domestic reinsurance companies. Improving the position, credit, and capacities of reinsurance companies along with direct insurers is one of the requirements for the growth of the country’s insurance industry. The country’s insurance industry has to expand and enter the reinsurance market because, as the number of insurance policies issued rises, so does the need for coverage from reinsurers.

The duties of reinsurance companies include:

• Protection and support of the ceding (direct) insurer against damages that may lead to its collapse and bankruptcy
• Providing stability in underwriting process of the ceding company
• Increasing the ability to expand the insurer’s activity from the perspective of the types of acceptable risks and the volume of transactions
• Diversification of risks on a large scale
• Assisting insurance companies determine the most suitable premium rates and terms by transferring expertise and experience

Using a reinsurance company’s services has the following advantages: 1. Improving the direct insurance company’s portfolio by developing the ability to issue insurance policies. 2. Reducing the risk of the direct insurance company 3. Helping to improve the direct insurance company’s good faith and confidence 4. Minimizing the direct insurance company’s obligations 5. Stabilizing premium rate through the utilizing of loss history 6. Protecting the capital of direct insurers