Primary insurers sell policies directly to customers, then pass the risk to reinsurers working behind the scenes. Reinsurers face lighter regulation than frontline insurers, so they demand higher returns on the risk they take on.
Reinsurance companies buy risk from an existing insurance company. So it's one way for the— we call it a fronting company, the frontline insurance company. They'll take the risk, they'll issue the policy, but they can sell that risk off to reinsurance companies in the back room. And that reinsurance company is only buying risk from a company that's already underwritten that risk. What that allows the reinsurance companies to do is because they're not issuing risk directly to a consumer, they don't have near the regulations a fronting company would have and they demand more. So they demand more on their returns. And so that's what's really happening right now.
