What Does Ceding Mean?


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Akshay Kalbag Profile
Akshay Kalbag answered
Ceding is defined as the act of cession or ceding. It comes from the verb to cede. To cede, in the insurance industry, is a term which means to transfer the risk which could possibly have been incurred by a direct insurer (an insurance company) to his reinsurer (usually, an insurance agent appointed by the insurer or insurance company).

The insurer has the option of transfer all or a part of the risk to the reinsurer, as per the definition of cession or ceding. It involves the distribution of the sum of money for which a person's life or property (in other words, the principal amount of the policy taken by the person from an insurer) has been insured of a risk between the reinsurer and the reinsured under pro-rata reinsurance contracts. All the premiums and losses which are related to that risk are then distributed in the same proportion which has been specified in the reinsurance contract.

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