Moreover, regardless of how large the sum is, when they took the policy they should have known if they could pay it? I'd have thought there's regulations on that.
Yep...reinsurance is a common practice in the industry
Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event.
What makes you think this is not the case? According to the article this disaster was within the parameters the the insurers planned for, even though it is the biggest of its kind.