View source for Definition:Assumed reinsurance

🔁 '''Assumed reinsurance''' is the portion of risk that a [[Definition:Reinsurer | reinsurer]] (or another [[Definition:Insurance carrier | insurer]]) accepts from a [[Definition:Ceding company | ceding company]] under a [[Definition:Reinsurance | reinsurance]] contract, effectively stepping into a share of the original insurer's [[Definition:Liability | liabilities]] in exchange for a corresponding share of [[Definition:Premium | premium]]. From the perspective of the company taking on the risk, the transaction is "assumed"; from the perspective of the company transferring it, the same transaction is [[Definition:Ceded reinsurance | ceded reinsurance]]. The distinction matters because assumed reinsurance appears as both [[Definition:Premium | premium]] income and [[Definition:Reserve | reserve]] obligations on the assuming company's [[Definition:Financial statement | financial statements]].

📑 The mechanics are governed by the terms of the underlying [[Definition:Reinsurance agreement | reinsurance agreement]], which may take the form of a [[Definition:Treaty reinsurance | treaty]] — covering an entire [[Definition:Line of business | line of business]] or book of [[Definition:Policy | policies]] automatically — or a [[Definition:Facultative reinsurance | facultative]] arrangement negotiated on a risk-by-risk basis. Under a [[Definition:Quota share reinsurance | quota share treaty]], for example, the assuming reinsurer takes a fixed percentage of every risk within the defined scope, receiving the same percentage of premium and bearing the same percentage of [[Definition:Loss | losses]]. Under [[Definition:Excess of loss reinsurance | excess of loss]] structures, the assumed obligation attaches only after the ceding company's [[Definition:Retention | retention]] is exhausted, exposing the reinsurer to [[Definition:Catastrophe | catastrophic]] or large individual [[Definition:Claim | claims]]. The assuming company books the assumed premiums as written and earned income and establishes [[Definition:Loss reserve | loss reserves]] and [[Definition:Unearned premium reserve | unearned premium reserves]] for its share of the liabilities.

📈 Assumed reinsurance is the primary revenue engine for professional [[Definition:Reinsurer | reinsurers]] and a meaningful income source for large [[Definition:Insurance carrier | insurers]] that participate in the reinsurance market alongside their direct-writing operations. The quality and diversification of an assumed book significantly influence the company's [[Definition:Financial strength rating | financial strength rating]], since concentrations in volatile lines or geographies can amplify [[Definition:Underwriting risk | underwriting volatility]]. Careful management — including [[Definition:Retrocession | retrocession]] to lay off peak exposures and rigorous due diligence on the [[Definition:Ceding company | ceding company's]] [[Definition:Underwriting | underwriting]] standards — is what separates profitable assumed portfolios from those that generate adverse development years after the business was written.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Ceded reinsurance]]
* [[Definition:Reinsurance]]
* [[Definition:Treaty reinsurance]]
* [[Definition:Facultative reinsurance]]
* [[Definition:Retrocession]]
* [[Definition:Ceding company]]
{{Div col end}}