Reviewed by Sep 30, 2020| Updated on
Reinsurance ceded is a portion of risk which a reinsurer would receive from the previous insurer of the insured. This would let the primary insurance company minimise its risk by passing on the policy that it has underwritten to another insurance provider.
The primary insurers are called as the ceding company while the reinsurer is referred to as accepting company. The reinsurance company would receive the payment of a premium in exchange for the risk it is going to assume and is liable to pay the claim for the risk it has taken up.
Reinsurance is an integral part of the insurance sector. Under this practice, the insurance companies are going to transfer a part of their portfolio to other companies. Doing this has allowed insurers to cede a portion of the risk they assumed to other companies and thereby reducing their overall liability and risk.
This has also provided them with a means to stay solvent even when they are liable to pay out a huge sum as a part of a claim filed by an insurer. Furthermore, insurers will maintain premiums lower for their customers or policyholders and thereby luring more individuals to avail their services.
Ceding of reinsurance provides the ceding insurance company with more security for their solvency, equity, and more stability at times of unprecedented developments in the market.
Reinsurance ceding will also permit the insurance companies with the liberty to underwrite policies covering a larger extent of risks with no excessive rise in the cost to cover solvency margins or the value at which the securities of the insurer exceeds liabilities and other financial commitments.
The process of reinsurance ceding enables the availability of considerable liquid assets for the insurance providers at times when there are considerable losses.