What is Cede or Ceding Company?
A Cede or a Ceding company is a firm which transfers either a portion or all risks in totality from its insurance portfolio to another reinsurance firm. This provides a considerable hedge against any unwanted exposure to loss and also the capital is freed for use in the writing of new insurance contracts. The liability for reinsured policies rests with the ceding company only. Thus, the claims have to be reimbursed by the reinsurance firm. However, in case of any default of the reinsurance company, the ceding company will have to pay for all the reinsured risks.
Insurance firms have to be prepared for sudden losses due to huge exposure to high-risk firms. The ceding company gets many benefits from the reinsurance company like decreased liability, protection in case of huge losses etc. This allows the ceding company to upkeep its solvency margin and increase the underwriting capacity by reduction of associated costs.