Reinsurance helps insurers with risk management, as to prevent major money losses from a claim. There are two type of reinsurance: facultative and treaty. Facultative reinsurance is purchased by ceding companies for individual risks not covered, or insufficiently covered. This helps the company take care of money risks in excess or helps in unusual circumstances. The treaty reinsurance is where the reinsurer and ceding company enter a contract where the reinsurer covers a share of all insurance policies. Usually the contract either states that the reinsurer will cover all policies or that the insurer can choose which policies it wants insured.
