Reinsurance, like any other area of finance, is a for-profit business. Reinsurers carefully select, price, and negotiate treaties with an eye toward one primary goal: fulfilling their obligations to the insurer while maximizing margins. For the average reinsurer, that means greater value for shareholders. For Re, underwriting profits support yield for holders of reUSD and reUSDe.

But what goes into determining the profit equation? What costs and revenues go into it? And how is the result measured? Let’s explore.

The Treaty

Before any money changes hands, the terms of the deal have to be set. That's the role of the reinsurance treaty: the contract between insurer and reinsurer. It determines what business is covered, how much risk the reinsurer takes on, how the reinsurer will be compensated for taking that risk, and under what circumstances it will be responsible for losses.

Some treaties may include caps on what the reinsurer is expected to pay, while others will not. Some require reinsurers to pay out a portion of covered losses from the start, whereas others may require insured losses to reach a certain level first. The exact details can vary widely, but the basic purpose is the same.

The Considerations

When deciding upon a treaty, the reinsurer must answer two questions: is this risk worth taking? And if so, what premium should we charge for it?

A lot goes into this decision. For example:

• Historical loss data: how often has this type of claim occurred, and what did it cost when it did?
• Risk models: statistical tools that estimate the probability and severity of future losses.
• Exposure data: the specific characteristics of the risk being covered (such as vehicle types, geographic area, industry classification, or workforce size).
• Market benchmarks: what are other reinsurers charging for similar risks, and why?

Let’s look at commercial auto, Re’s second largest category of business (as of October 2026). Before backing commercial auto business, reinsurance underwriters will analyze the likes of fleet size, vehicle types, and their primary use; operating locations (urban routes generally see more accidents than rural ones); the insurer’s claims history over the long term; and the financial health of the insurer itself.

The goal is to build an accurate picture of how likely claims are to occur, how expensive they will be, and, above all, whether the premium justifies the risk. The premium must be high enough to cover expected claims and operating costs yet still generate a good return for the reinsurers.

In the end, the performance of a treaty comes down to a simple comparison: how much money the reinsurer earned in premiums versus the amount it had to pay out in costs.

The Costs

Claims

When one thinks about insurance (and thus, by relation, about reinsurance), the primary cost one probably considers is claims. Policyholders file claims when covered events occur, and the insurer pays out based on the terms of the policy. It’s much the same for reinsurers; when events covered by a reinsurance treaty transpire, the reinsurer pays the insurer based on the letter of the contract between them.

But the claims category doesn't just include the cost of paying out those claims. It also includes the costs associated with those claims. For example, processing claims could require paying for defense lawyers, expert witnesses, fraud investigators, forensic accountants, court costs, and so on. There’s also the overhead of having a claims department at all: staff salaries, general infrastructure, even the office they work in.

Other Expenses

In addition to claims, there are the more ordinary expenses. Running an enterprise costs money, from the investment involved in finding business to the more mundane costs of operation. These are what you’d expect: they range from the likes of rent, utilities, and building maintenance, to furniture, equipment, computers and software, to cloud hosting, tax preparation, outside legal counsel, and staff salaries. They may also extend to reinsurance broker fees, costs associated with treaty negotiation, financial audits, and so on.

The Revenue

Revenue from reinsurance contracts comes from insurer premiums. Just as insurers receive premiums from policyholders for providing coverage, so do reinsurers from insurers. How much the reinsurer is paid depends on the terms of the treaty and can vary widely.

Premiums represent the revenue side of the underwriting performance equation. When determining underwriting performance, all costs are measured against them.

The Results

This brings us to the most important metric in reinsurance economics: the combined ratio. It’s the chief indicator of underwriting profitability (or lack thereof).

Combined ratio is a simple equation: add together claims and other expenses, then divide that sum by premiums taken in, and convert the result into a percentage.

Let’s say that for a given treaty, claims equaled $5 million, other expenses added another $4 million, and premiums were $10 million. That would yield a combined ratio of 90%, indicating that an underwriting profit was made. In simple terms, the reinsurer earned a dollar of premium for every 90 cents it spent on the treaty.

It’s rare for a reinsurer to carry just a single treaty. Reinsurers vary widely in size; most may carry dozens, hundreds, or even (in the case of the real titans) thousands of treaties at any given time. For any reinsurer, the most important manifestation of combined ratio isn’t the performance of any given treaty but rather that of their portfolio as a whole. That bundles together the performance of all treaties in the reinsurer’s book. 100% means that the reinsurer broke even. Over 100% equals a loss. Less than 100% means an underwriting profit.

Re’s Performance

To date, Re’s portfolio has been profitable (that is, a combined ratio of below 100%) in each individual year since inception. Since inception, it has recorded an overall combined ratio of 92%¹.

Several factors help to explain that performance. First, a skilled and diligent underwriting team. Second, favoring meaningfully high loss thresholds (where applicable) before Re begins paying for losses. And finally, a highly diversified portfolio with only modest exposure to catastrophe.

¹ Past performance is not a reliable indicator of future results.