ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Reinsurance ceded is the action taken by an insurer to pass off a portion of its obligation for coverage to another insurance company.

Detailed explanation-2: -Issue: Reinsurance, often referred to as “insurance for insurance companies, ” is a contract between a reinsurer and an insurer. In this contract, the insurance company-the cedent-transfers risk to the reinsurance company, and the latter assumes all or part of one or more insurance policies issued by the cedent.

Detailed explanation-3: -Cede-when a company reinsures its liability with another. The original or primary insurer, the insurance company that purchases reinsurance, is the “ceding company” that “cedes” business to the reinsurer.

Detailed explanation-4: -Put simply, reinsurance is the process where one insurance company spreads the risk to other insurers (called reinsurers) who purchase policies. Sharing the risk allows insurance companies to remain solvent in the event of (catastrophic) events that may result in multiple claims that require excessive payouts.

Detailed explanation-5: -Key Takeaways. A ceding company is an insurance company that passes a portion or all of the risk associated with an insurance policy to another insurer. Ceding is helpful to insurance companies since the ceding company that passes the risk can hedge against undesired exposure to losses.