Cedent
A cedent is a party in an insurance contract who passes the financial obligation for certain potential losses to the insurer. Types of reinsurance available to cedents include: factultative, a reinsurance treaty, proportional reinsurance, non-proportional reinsurance, and excess-of-loss, and risk-attaching reinsurance. The transmission of all or some risks to the reinsurance company helps the cedent company maintain its solvency margin while enhancing underwriting capacity by reducing the associated costs, etc. Insurance companies are regulated so that they may not write policies in excess of a certain percentage of their collateral. **Facultative reinsurance** coverage protects a cedent insurance company for a certain individual or a specified risk or contract. With **non-proportional reinsurance**, the reinsurer is liable if the cedent's losses exceed a specified amount, known as the priority or retention limit.
What Is a Cedent?
A cedent is a party in an insurance contract who passes the financial obligation for certain potential losses to the insurer. In return for bearing a particular risk of loss, the cedent pays an insurance premium. The term cedent is most often used in the reinsurance industry, although the term could apply to any insured party.
Understanding Cedent
Insurance firms are vulnerable to unforeseen losses due to excessive exposure to high-risk entities. A reinsurer provides the cedent company with multiple reductions in liability and protection against big losses. The transmission of all or some risks to the reinsurance company helps the cedent company maintain its solvency margin while enhancing underwriting capacity by reducing the associated costs, etc.
Insurance companies are regulated so that they may not write policies in excess of a certain percentage of their collateral. However, insurance companies do not have to hold collateral against policies that are reinsured.
Reinsurance Available to Prospective Cedents
Most insurance companies cede some of their risks in a reinsurance program in order to manage their operations more efficiently.
Related terms:
Accounting
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more
What Is a Ceding Company?
A ceding company is an insurance company that passes a part or all of its risks from its insurance policy portfolio to a reinsurance firm. read more
Collateral , Types, & Examples
Collateral is an asset that a lender accepts as security for extending a loan. If the borrower defaults, then the lender may seize the collateral. read more
Excess of Loss Reinsurance
Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies the ceding company for losses that exceed a specified limit. read more
Exposure Rating
An exposure rating is used by reinsurers to calculate risk when they do not have enough historical data on a specific insured party. read more
Facultative Reinsurance
Facultative reinsurance is purchased by a primary insurer to cover a single risk—or a block of risks—held in the primary insurer's book of business. read more
Insurance Premium
An insurance premium is the amount of money an individual or business pays for an insurance policy. read more
Insurance
Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies and/or perils. read more
Quota Share Treaty
A quota share treaty is a pro rata reinsurance contract in which the insurer and reinsurer share premiums and losses according to a fixed percentage. read more
Reinsurance
Reinsurance is the practice of one or more insurers assuming another insurance company's risk portfolio in an effort to balance the insurance market. read more