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📋 '''Cede''' refers to the act by which an [[Definition:Insurance carrier | insurance carrier]] transfers a portion of its [[Definition:Risk | risk]] or [[Definition:Premium | premium]] to a [[Definition:Reinsurer | reinsurer]] under a [[Definition:Reinsurance | reinsurance]] agreement. The insurer performing this transfer is known as the [[Definition:Ceding company | ceding company]], and the process is foundational to how insurers manage [[Definition:Risk exposure | risk exposure]], stabilize [[Definition:Loss ratio (L/R) | loss ratios]], and protect their [[Definition:Balance sheet | balance sheets]] against [[Definition:Catastrophic loss | catastrophic losses]]. In everyday industry usage, "to cede" is the standard verb describing any outward movement of risk from a [[Definition:Primary insurer | primary insurer]] to the reinsurance market.

⚙️ When a carrier cedes business, it enters into a contractual arrangement — either [[Definition:Treaty reinsurance | treaty]] or [[Definition:Facultative reinsurance | facultative]] — that defines which [[Definition:Policy | policies]] or classes of business are covered, the proportion of risk transferred, and how [[Definition:Premium | premiums]] and [[Definition:Claim | claims]] will be shared. Under a [[Definition:Quota share | quota share]] treaty, for instance, the ceding company transfers a fixed percentage of every risk in a defined [[Definition:Book of business | book of business]]. Under [[Definition:Excess of loss reinsurance | excess of loss]] arrangements, the carrier cedes only the portion of a loss that exceeds a specified [[Definition:Retention | retention]]. The terms governing ceded business dictate the financial mechanics of the relationship, including [[Definition:Ceding commission | ceding commissions]] paid back to the insurer to offset [[Definition:Acquisition cost | acquisition costs]].

💡 The ability to cede risk is what allows insurers to write policies far larger than their own [[Definition:Surplus | surplus]] would otherwise permit, effectively expanding [[Definition:Underwriting capacity | underwriting capacity]] across the market. Without cession, individual carriers would bear concentrated exposures that could threaten their [[Definition:Solvency | solvency]] after a major event. [[Definition:Regulatory authority | Regulators]] closely monitor ceded arrangements to ensure that the credit a ceding company takes for reinsurance is backed by financially sound counterparties, and [[Definition:Rating agency | rating agencies]] factor reinsurance programs into their assessments of an insurer's overall financial strength.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Ceded reinsurance]]
* [[Definition:Ceded loss]]
* [[Definition:Ceding company]]
* [[Definition:Reinsurance]]
* [[Definition:Retention]]
* [[Definition:Ceding commission]]
{{Div col end}}

Definition:Cede - Revision history

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