A type of reinsurance where the premium less a small profit margin is returned to the reinsured in the case of a loss or when the term of the reinsurance contract has expired. Because most of the premium is always returned, there is little to no transfer of risk. This financial management instrument is a way for insurance companies to stash away profits in one year to make up for potential losses in subsequent years without tax penalties. This approach helps smooth the company's financial results and make the model more consistent.
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