“A simplified example involving aviation shows how reinsurance works. Say an airline takes out a policy from a group of primary insurers for up to $1.5 billion per crash. The primary insurers, not wanting to keep so much risk, decide to retain only the first $100 million of it. They unload the rest to reinsurers by buying several policies from them. One might cover the layer of losses from $100 million to $400 million. Another might cover the losses from $400 million to $750 million, and so on. These reinsurers, in turn, often seek to minimise their own risks by buying reinsurance themselves, from still other companies.

“If there is a plane crash, every insurer that has covered a layer of the risk has to pay its part. It's a big global industry that includes such prominent companies as Swiss Re Group, General Electric Co., Berkshire Hathaway Inc. and the Lloyd's of London syndicates.” - The Wall Street Journal