Guides
Reinsurance: the insurers behind your insurer
How reinsurance works for home insurers: quota share vs excess of loss, retentions and towers, state backstops, and what it means for your premium and claim.
Reinsurance is insurance that insurance companies buy. Your insurer pays a reinsurer a premium, and the reinsurer reimburses part of the insurer's losses when claims pass an agreed level, typically after a hurricane, wildfire or hail outbreak. It does not change who you file a claim with or who pays you. It does decide how large a disaster your insurer can survive, and it is one of the biggest costs behind your premium.
You never see a reinsurance contract, but you feel it: in rate filings that cite "reinsurance costs," in insurers that cap policy counts in coastal counties, and in the way a small Florida or Louisiana company can write thousands of homes without owning the capital to pay for a major hurricane by itself.
What reinsurance does
A primary insurer collects premium from many homeowners and expects only a few to claim in a normal year. Disasters break that pattern because they hit many policies at once. Reinsurance gives the insurer three things.
- Protection for its capital. A hurricane that would cost an insurer $800 million might cost it $250 million after reinsurance, preserving its policyholder surplus.
- Capacity. Regulators and rating agencies limit how much risk a given amount of capital can support. Buying reinsurance lets an insurer write more policies than its surplus alone would allow.
- Stability. It evens out results across years, which is what lets insurers keep underwriting in risky states instead of leaving.
The reinsurer might be a dedicated company such as Swiss Re or Munich Re, a Bermuda or Lloyd's market, a pension fund through a catastrophe bond, or a government program like the Florida Hurricane Catastrophe Fund. Reinsurers buy their own reinsurance too, called retrocession.
The two main structures
| Quota share | Excess of loss (catastrophe) | |
|---|---|---|
| How it works | Reinsurer takes a fixed percentage of every policy's premium and losses | Reinsurer pays only when losses exceed a retention, up to a limit |
| Example | Insurer cedes 30% of premium and pays back 30% of every claim | Pays the layer from $200 million to $500 million of a single event |
| Main purpose | Frees capital, supports growth | Protects against a single big event |
| Who uses it | Newer or fast-growing insurers, smaller companies | Nearly every property insurer in a catastrophe-exposed state |
| Cost shape | The reinsurer gets a ceding commission to reimburse acquisition costs | Priced per layer, as a rate on the limit |
Many home insurers use both. A quota share reduces the exposure first, then an excess of loss tower protects what remains. Guy Carpenter noted in its May 2026 Florida report that quota share markets improved for buyers, with added catastrophe limits and higher ceding commissions, according to its press release.
How a tower works (hypothetical)
An insurer sizes its tower against a modeled one-in-100-year or one-in-50-year loss, its probable maximum loss. See reinsurance tower for the vocabulary.
Say a coastal insurer buys this program:
| Layer | Attaches at | Limit |
|---|---|---|
| Insurer retention | $0 | $100 million |
| Layer 1 | $100 million | $150 million |
| Layer 2 | $250 million | $250 million |
| Layer 3 | $500 million | $300 million |
A storm costing $380 million leaves the insurer paying its $100 million retention, Layer 1 paying its full $150 million, and Layer 2 paying $130 million. The insurer may also have to pay a reinstatement premium to restore the used limit for the rest of the season. A storm costing $900 million exhausts the tower, and the insurer pays the top $100 million itself. These figures are made up to show the arithmetic.
Lower layers are hit often and cost more per dollar of protection; upper layers rarely trigger and cost less. The price is quoted as a rate on line: premium divided by limit. A layer with a $20 million premium for a $200 million limit has a 10% rate on line, meaning the market treats it as roughly a one-in-ten-year loss, plus the reinsurer's margin.
Why your claim is not affected
Your policy is a contract between you and your insurer. A reinsurance recovery is the insurer's business. Legally, the insurer owes you the full amount whether or not the reinsurer pays, and the reinsurer cannot reduce your claim. The risk to you is indirect: if reinsurance runs out, the insurer's surplus may be wiped out, and the state guaranty fund then steps in with limits. That is the reason to look at Financial strength ratings: AM Best, S&P, Moody's and Demotech and the insurer's reinsurance program before buying from a thinly capitalized company.
Why prices swung
Reinsurance prices follow capital and losses, not your house. After a run of heavy catastrophe years, reinsurers lose money, capital leaves, and prices climb. When capital returns, prices drop.
Guy Carpenter's U.S. property catastrophe rate-on-line index rose 30.1% at January 1, 2023, the steepest annual increase since 2006, according to Reinsurance News. Pricing then fell. According to Artemis, the index was down 6.2% at January 1, 2025, down 12% at January 1, 2026, and down 16% for 2026 to date after mid-year renewals, which Artemis called the largest annual decline since 2014. It is still well above its 2017 low.
In Florida, risk-adjusted pricing at the June 1, 2026 renewals generally fell 15% to 20% across many layers, according to Guy Carpenter, and Gallagher Re reported an average decline of 22.8%, per Reinsurance News. Our guide reinsurance costs and your premium covers how, and whether, those savings reach homeowners.
Government and pooled backstops
Some states do part of the reinsurer's job.
- Florida Hurricane Catastrophe Fund. A state program that reimburses a share of covered residential hurricane losses above each insurer's retention. All Florida residential writers, including Citizens Property Insurance Corporation, must buy it. See Florida and florida's home insurance market: what happened and what changed.
- Texas Windstorm Insurance Association. The coastal wind pool buys private reinsurance and has issued catastrophe bonds to fund claims beyond its own resources. See Texas and TWIA and the Texas FAIR Plan: what each covers and when you need them.
- Federal proposals. Congress has debated a federal catastrophe backstop for years. See federal catastrophe reinsurance proposals.
Who is exposed when reinsurance is thin
Insurers that write in a single catastrophe-prone region rely on reinsurance more than national carriers that spread losses across many states. Specialists such as SageSure and many Florida domestic companies buy towers sized to concentrated portfolios, so a swing in reinsurance prices reaches their rate filings quickly.
What you can do
- Ask your agent which legal company issues your policy, and look up its AM Best or Demotech rating.
- Read your state's rate filings for reinsurance cost assumptions, available through your department of insurance. how insurers file rate increases with regulators shows where.
- At renewal, if your rate fell or rose sharply, ask the agent whether reinsurance was a factor.
- In a coastal or wildfire state, prefer an insurer whose financial rating is strong enough to hold through a bad season.
Key takeaways
- Reinsurance is insurance for insurers; it protects the insurer's capital but does not change what the insurer owes you.
- The two main structures are quota share (a percentage of everything) and excess of loss (protection above a retention).
- Reinsurance prices rose 30.1% at January 2023 and have fallen sharply since, according to Guy Carpenter's index.
- Reinsurance is a major cost behind premiums, and when it softens the savings reach homeowners unevenly, state by state.