Definition:Cession
📤 Cession is the act of transferring a specified portion of insurance risk — along with the corresponding premium — from a cedent to a reinsurer. Each individual transfer constitutes a cession, and together the cessions under a given reinsurance treaty define the total volume and nature of risk that has moved from the primary insurer's books to those of the assuming reinsurer.
⚙️ How a cession operates depends on the treaty structure. In proportional arrangements such as quota share or surplus share treaties, each qualifying policy is automatically ceded at the agreed percentage, with premiums and losses shared in the same proportion. Under facultative reinsurance, cessions are negotiated on a risk-by-risk basis, requiring separate approval from the reinsurer for each account. The cedent typically reports cessions to the reinsurer on a periodic basis — often quarterly — through bordereaux that detail the policies, premiums, and claims included in each reporting period.
🧩 Beyond its technical function, the pattern of cessions across an insurer's portfolio tells a strategic story. Analysts can examine cession rates to gauge how aggressively a carrier is managing its net retention, whether it is growing into new lines by leaning on reinsurance capacity, or whether it is pulling back from volatile segments. Regulatory frameworks also pay close attention: the volume and quality of cessions — particularly the financial strength of the reinsurers assuming them — factor directly into solvency calculations and statutory reporting requirements.
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