Ceding company

Ceding company,

Definition of Ceding company:

  1. The insurance company that transfers the insurance it has written to another insurance company.

  2. A ceding company is an insurance company that passes a portion or all of the risk associated with an insurance policy to another insurer. Ceding is helpful to insurance companies since the ceding company that passes the risk can hedge against undesired exposure to losses. Ceding also helps the ceding company to free up capital to use in writing new insurance contracts.

  3. Sometimes, an insurance company may want to reduce the risk of paying out an insurance claim for some of the policies in its portfolio. Insurers can cede or offer the policy to another insurance company that's willing to take on the risk of paying out a claim for that policy. The company receiving the policy is called the reinsurance company, while the insurer passing the policy to the reinsurer is called the ceding company. However, the ceding company loses out on most of the premiums paid by the policyholders for any of the policies ceded to the reinsurer. Instead, the reinsurer gets paid the premiums from the policyholders. However, the reinsurer typically pays a portion of the premiums back to the ceding company. These payments are called ceding commissions.

How to use Ceding company in a sentence?

  1. A ceding insurer can also use reinsurance to control the amount of capital it is required to hold as collateral.
  2. A ceding company is an insurance company that passes a portion or all of the risk associated with an insurance policy to another insurer.
  3. Ceding is helpful to insurance companies since the ceding company that passes the risk can hedge against undesired exposure to losses.

Meaning of Ceding company & Ceding company Definition