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Re-insurance refers to the arrangement under which an insurer enters into contract with another insurer for the assumption of a part or whole of the risk insured by the first insurer. In another words, the reinsurer undertakes to insure the first insurer against loss from some or all of the risk he has insured. This may be done in several ways. The re-insurer may agrees to cover all losses beyond a specified amount. He may agress to cover a proportion never less or the total of all losses over a specified amount during a given period. A contract of reinsurance like any fire insurance contract, is a contract of indemnity. It also requires utmost good faith.

It has many advantages. Firstly it enables the wider distribution of risk. Secondly, the insurer can contract to indemnify more risks. Thirdly, it stablises income over a period of year.