Definition - What does Retrocession mean?
Retrocession is when one reinsurance company has another insurance company assume some of its risks. Like many other types of insurance, this is done for a fee. Reinsurance companies commonly participate in retrocession in order to prevent the chances of being unable to meet their financial obligations in the event that a disaster occurs and causes many claims to be filed at once.
Insuranceopedia explains Retrocession
Even reinsurance companies sometimes need help covering their risks. If a reinsurance company feels that it is too exposed, then it may use retrocession to cede some of its risks to another reinsurer. Events like tornadoes, hurricanes, monsoons, tsunamis, earthquakes, and acts of war can all cause a tremendous amount of claims to be filed at once. Retrocession is especially helpful for circumstances like these. This is because it helps the reinsurer from being overexposed to claims these hazards.