MR. WATSON: So a reinsurance company is a company that would insure insurance companies. So if Jim was to die, New York Life would pay his beneficiary $5 million, but they are going to get $2 million of that from where? Swiss Re.

Listen to the words I am saying. The company that is transferring the risk is called the ceding company. Johnny Appleseed walked around seeding the land, throwing out the seeds. So the company throwing out the risk would be the ceding company. In this case it is c-e-d-i-n-g. Does that make sense? So the company insuring the insurance company is called the what?

STUDENTS: The reinsurer.

MR. WATSON: And the company transferring the risk is it the what?

STUDENTS: Ceding company.

MR. WATSON: I use Johnny Appleseed so you can make up some kind of picture in your head. Everybody have it?

STUDENTS: Yes.

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MR. WATSON: INDUSTRIAL or DEBIT INSURANCE

MR. WATSON: Knock! Knock! Knock! (Knocking on desk.)

STUDENT: Who is there?

MR. WATSON: Hi! I am here to collect your nickel.

I want to talk about home service companies. They sell industrial insurance, debit insurance, burial insurance. These are sold by home service companies.

150 years ago John Hancock started out like this. Every company started out like this if they have been around a long time.

Take a coal miner. He couldn't afford to send his premiums in advance. So the agent would come by and sell him a small policy, less than $3,000. Back then it might be a $100 policy, or $150, enough to get him in the ground, pay for his burial. So the agent would come by every Thursday. He would knock on the door. Knock, knock. Did the coal miner answer the door? No. Where was he? In the coal mines.

MR. WATSON: Now, hanging on the screen door on a hook is a long envelope with a nickel in it. The agent would grab that nickel and he would shake it out in his hand and put it in his pocket, and he would mark "paid." Next Thursday, he repeats the whole process. Every Thursday, knock on the door; go through the whole process again.

They are home service companies. The agents collected the premiums at the home of the insureds, because the insured person didn't have enough money to send it in advance. Home service companies do the same with debit insurance and burial insurance.