Cedent Definition

A cedent is someone who transfers the financial responsibility for potential losses to an insurer in an insurance contract. The cedent pays an insurance premium in exchange for taking on a specific risk of loss. The term cedent is commonly used in the reinsurance industry, but it can also apply to any insured party. So it’s Cedent Definition.

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Insurance companies are at risk of unexpected losses because they are exposed to high-risk entities. Reinsurers offer the insurance company protection against large losses by reducing their liability. By transferring some or all of the risks to the reinsurer, the insurance company can maintain its financial stability and increase its ability to underwrite policies by reducing costs.

Reinsurance Available to Prospective Cedents

Insurance companies often transfer a portion of their risks to a reinsurance program to enhance their operational efficiency.

  • Facultative reinsurance coverage protects a cedent insurance company for a certain individual or a specified risk or contract. coverage protects a cedent insurance company for a certain individual or a specified risk or contract.
  • Reinsurance treaty is effective for a set period rather than on a per-risk or contract basis. The reinsurer provides coverage for either all or a part of the risks that an insurance company may face.
  • Under Proportional reinsurance the reinsurer receives a prorated share of all policy premiums sold by the cedent. The reinsurer pays a part of the losses when claims are made, according to a previously agreed percentage. Additionally, the reinsurer compensates the cedent for expenses related to processing, acquiring business, and writing.
  • Non-proportional reinsurance, the reinsurer is liable if the cedent’s losses exceed a specified amount, known as the priority or retention limit. The reinsurer does not receive a proportional share of the ceding insurer’s premiums and losses. The priority or retention limit can be determined by a specific type of risk or an entire risk category.
  • Excess-of-loss reinsurance is a type of non-proportional coverage for which the reinsurer covers the losses exceeding the ceding insurer’s retained limit. This agreement is commonly used for major disasters, providing coverage for the party involved either for each individual event or for the total losses over a specific time frame.
  • Risk-attaching reinsurance, all claims established during the effective period are covered, regardless of whether the losses occurred outside the coverage period. Claims that occur outside the coverage period are not covered, even if the losses happened during the contract.