A primary insurer that writes thousands of Florida home policies has a hidden problem: those risks are correlated. One hurricane can hit them all on the same afternoon, and the claims could dwarf the premiums collected. Reinsurance is the fix, insurance bought by insurers. The original insurer (the cedent or ceding company) pays a premium to a reinsurer, which agrees to pick up an agreed slice of the losses. The reinsurer's edge is diversification: by writing Florida wind, Japanese quake, European flood and Australian bushfire, it pools risks that almost never go wrong at once, so a Florida storm is just one bad day in a global book.