Reinsurance fundamentals

Cedent / ceding company

The cedent, also called the ceding company, is the insurer that transfers (or 'cedes') part of its risk to a reinsurer in exchange for a share of the premium.

Loss ratio

The loss ratio is losses, and often loss-adjustment expenses, divided by earned premium. It is a core measure of underwriting performance.

Reinsurance

Reinsurance is insurance for insurance companies. In a reinsurance transaction, one insurer (the reinsurer) agrees to indemnify another insurer for part of the losses it may pay on the policies it has written.

Reinsurance capacity

Reinsurance capacity is the amount of coverage reinsurers are willing and able to provide to insurers. It reflects the capital available in the market to absorb risk.

Reinsurance regulation

Reinsurance regulation is the body of laws and rules that governs how reinsurers operate and how a ceding insurer can take financial-statement credit for the reinsurance it buys. In the United States it is set mainly by the states and coordinated through the NAIC.

Reserving

Reserving is the process of setting aside estimated funds to pay for claims that have already occurred but are not yet fully paid, including claims incurred but not yet reported (IBNR).

Types of reinsurance

Reinsurance is generally described along two dimensions: how risks are arranged (treaty versus facultative) and how losses are shared (proportional versus non-proportional).