Retrocession

Retrocession is the practice of an insurance company transferring a portion of its risk to another insurance company. This can be done for a variety of reasons, such as to reduce the insurer's overall risk exposure, to obtain better rates, or to provide coverage for risks that the insurer does not want to retain.

There are two main types of retrocession: facultative and obligatory. Facultative retrocession is when the ceding company (the company that is transferring the risk) has the option to cede a risk to the retroceding company (the company that is accepting the risk). Obligatory retrocession is when the ceding company is required to cede a risk to the retroceding company.

The retrocession agreement will specify the terms of the transaction, such as the amount of risk that is being ceded, the premium that is being paid, and the terms of the reinsurance. The agreement will also specify the rights and obligations of the ceding company and the retroceding company.

Retrocession can be a valuable tool for insurance companies to manage their risk exposure. By transferring a portion of their risk to another company, insurers can reduce their overall risk and improve their financial stability. Additionally, retrocession can help insurers obtain better rates for their coverage.

However, retrocession can also be a costly and complex process. Insurance companies should carefully consider the benefits and risks of retrocession before entering into a retrocession agreement.

Here are some additional details about retrocession:

• The retrocession market is a global market, with transactions taking place in a variety of countries.
• The size of the retrocession market is estimated to be around $100 billion per year.
• The most common types of risks that are ceded in retrocession agreements are property, casualty, and liability risks.
• Retrocession can be used to transfer a variety of risks, including natural disasters, terrorism, and cyber risks.
• Retrocession can be a valuable tool for insurance companies to manage their risk exposure and improve their financial stability.