REINSURANCE: An endorsement to an insurance policy or reinsurance contract which provides that, in the event of the insolvency of the insurance company, the amount of any loss which would have been recovered from the reinsurer by the insurance company (or its statutory receiver) will be paid instead directly to the policyholder, claimant, or other payee, as specified in the endorsement, by the reinsurer. The term is distinguished from an assumption. See Assumption of Liability Endorsement.
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REINSURANCE: Guarantee of coverage by a Reinsurer to a third party who is not a party to the Reinsurance contract
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This is also known as an “assumption endorsement.” Basically, it is an endorsement to a reinsurance contract that states that if the ceding company becomes insolvent, the reinsurer will pay any covered loss directly to the insured. The endorsement provides an extra layer of security if the company that issues the policy to the insured is not admitted in the state (and, thus, does not come under the state’s guaranty fund) or is financially weak and the reinsurer is financially more secure. (See Guaranty Fund; Reinsurance).