What Does Cession Mean?
Cession is the allocation of risks given to the reinsurer by a ceding company. Ceded risks are either proportional or non-proportional for both premiums and losses. Trading is based on profitability of actuarial calculations.
Insuranceopedia Explains Cession
The number of risks transferred to the reinsurer by the ceding company may be determined at a percentage. The premiums for these risks are predetermined as well. This kind of cession is called proportional. The cession is called non-proportional when the reinsurer pays out only when the cost of a risk is above a certain amount.
Reinsurers want to buy risks at a lower price than the original cost, while ceding companies want to sell them at a higher price.