What Does Reinsurance Ceded Mean?
Reinsurance ceded refers to a situation in which an insurance company (called the ceding company) transfers a risk or risks in a policy to another company (the reinsurer). The ceding company pays a premium to the reinsurer. The reinsurer pays the claim involving the ceded risk.
Insuranceopedia Explains Reinsurance Ceded
Ceding insurance risks to another company is a way of lowering the possibility of a negative financial situation for an insurance company since some claims will now be paid by another company.
One type of ceding is by transferring the risk of an individual policy. This might happen if a particular risk is not a part of the original policy and only by transferring it to another company can the policy be executed. This type of ceding is called facultative reinsurance.
The other type is called treaty reinsurance. This happens when the reinsurer takes on a particular risk or a number of specified risks of all insurance policies of an insurance company.