Reinsurance

Insurance bought by insurance companies. Spreads tail risk by ceding portions of large policies to reinsurers (Munich Re, Swiss Re, Berkshire Re). Critical for catastrophe coverage — no single insurer could absorb a $50B Florida hurricane on its own.

Reinsurers are essentially levered bets on uncorrelated catastrophe risk. Premiums spike after big losses ("hard market") and compress in calm years ("soft market").