Cession

What Does Cession Mean?

Cession is the allocation of risks transferred to a reinsurer by a ceding company. Ceded risks can be classified as either proportional or non-proportional concerning both premiums and losses. Trading in these risks is based on the profitability derived from actuarial calculations.

Insuranceopedia Explains Cession

The number of risks transferred to the reinsurer by the ceding company can be expressed as a percentage. The premiums for these risks are also predetermined. This type of cession is referred to as proportional. In contrast, cession is considered non-proportional when the reinsurer pays out only if the cost of risk exceeds a certain threshold.

Reinsurers aim to purchase risks at a lower price than the original cost while ceding companies seek to sell them at a higher price.