What Does Primary Insurer Mean?
A primary insurer is the insurance company that sells an insurance policy to a client, and then purchases reinsurance. As insurance companies are at risk of unforeseen losses due to high-risk entities, the primary insurer is responsible for transferring the risk to a reinsurer through a cessation process and by contractual agreement. This is the reason why the primary insurer is considered as the "ceding company" where businesses originate.
In order to protect the insurance company from any major financial losses, it is the role of the primary insurer to hold a designated amount of risk while the amounts over and above that are placed on the reinsurance company.
Insuranceopedia Explains Primary Insurer
Primary insurers pay a premium to the reinsurers. That premium can be reduced by a commission the reinsurer pays towards the insurer.
The primary insurer pays the reinsurance premium for the protection it needs. Since the primary insurer sustains the expenses of issuing the policy, the reinsurer needs to pay a ceding commission to the primary insurer. Thus, the price of the reinsurance depends on the amount of risk available.
The primary insurer is responsible for defending the insured by negotiating settlements and indemnifying the insured policyholders up to their policy limits. It is also the obligation of the primary insurer to handle the claims.