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Reinsurance Facility

Reinsurance Facility

Definition

Two states—North Carolina and New Hampshire—use a residual market mechanism known as a reinsurance facility. A reinsurance facility is an unincorporated, nonprofit entity, through which auto insurers provide coverage and service claims. After issuing a policy, an insurer may decide either to handle the policy as part of its regular voluntary business or to transfer it to the reinsurance facility or pool. An insurer is permitted to transfer or "cede" to the pool a percentage of its policies. Premiums for this portion of business are sent to the pool, and these insurance companies then bill the pool for claims payments and expenses. Profits or losses are shared by all auto insurers licensed in the state.

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