Retrocession
Retrocession is reinsurance purchased by a reinsurer. When a reinsurer transfers part of the risk it has assumed to another reinsurer, the transaction is a retrocession and the party accepting that risk is a retrocessionaire.
Reinsurance itself is insurance for insurers. Retrocession extends that chain one step further: after a primary insurer cedes risk to a reinsurer, the reinsurer can in turn cede part of its assumed risk to yet another reinsurer. The ceding reinsurer is the retrocedent, and the assuming company is the retrocessionaire.
This matters because it lets reinsurers manage their own accumulations, limit exposure to any single event, and free up capacity to write new business. It effectively spreads a large or concentrated risk across a wider set of balance sheets. Regulators and market participants also watch retrocession carefully, because risk that is passed around too many times can circle back through a market in ways that are hard to track, a pattern sometimes called a spiral.
As an example, a reinsurer that has taken on significant catastrophe exposure in one region may retrocede a slice of that risk so a single major storm does not threaten its solvency.
Retrocession is a core part of how the global reinsurance market, including specialty and emerging risk capacity, distributes large exposures.
Definitions are educational and general, and specific contracts, endorsements, and state rules may modify them. For regulatory guidance, refer to the NAIC or the Insurance Information Institute.