What Does Reinsurance Assumed Mean?
Reinsurance assumed refers to an insurer consenting to take a risk from another insurer. By doing so, the reinsurer takes on the financial responsibility for that risk, including honoring any claims made by the insurer's policyholders.
In exchange for this assumption of risk, the original insurer (known in this case as the ceding company) pays the reinsurer for the transfer.
It is also known as assumed reinsurance or assumption reinsurance.
Insuranceopedia Explains Reinsurance Assumed
Reinsurance is a way of insuring insurers. When the company transfers a risk to a reinsurer, it does so because it is not confident that it can retain that risk while still maintaining a secure financial future.
Conversely, when a reinsurer accepts a risk, it is because they are confident they will be capable of handling all of its associated responsibilities. Reinsurers typically benefit from the assumption of risk, rather than have their financial security threatened by it.
A reinsurer might assume a single risk or a single type of insurance policy, or it could assume multiple risks or a number of insurance lines. All of this depends on the contract it makes with the ceding company.