Business, Legal & Accounting Glossary

Definition: Cedent


Quick Summary of Cedent

A cedent is a party who passes the duty for reimbursing certain risks to another party. In the context of insurance, the cedent is the party that pays a premium to an insurance company in exchange for insurance coverage.

The term “cedent” is used most often in the reinsurance business. They are the insurance companies that hand over their risks to the reinsurers.

For instance, if a life insurance company cedes risk worth $5 million to a reinsurance firm in exchange for premium payments, the life insurance company is the cedent.

Full Definition of Cedent

In an insurance contract, a cedent is a person who transfers financial responsibility for certain possible losses to the insurer. The cedent pays an insurance premium in exchange for taking on a specific risk of loss. Although the term cedent is most frequently used in the reinsurance industry, it can refer to any insured party.

  • In an insurance contract, a cedent is a person who transfers financial responsibility for certain possible losses to the insurer.
  • Certain insurance companies manage their business by ceding certain risks to a reinsurer.
  • The transmission of all or a portion of the cedent company’s risks to the reinsurance firm enables the cedent business to maintain its solvency margin while increasing its underwriting capacity.
  • There are several types of reinsurance accessible to cedents, including factual, reinsurance under a reinsurance treaty, proportional, non-proportional, excess-of-loss, and risk-attaching reinsurance.

Insurance companies are susceptible to unanticipated losses as a result of their disproportionate exposure to high-risk organisations. A reinsurer offers the cedent company numerous liability reductions and protection against large losses. The transfer of all or a portion of the risks to the reinsurance firm enables the cedent business to keep its solvency margin while increasing underwriting capacity through cost savings, etc.

Insurance firms are controlled in such a way that they are prohibited from writing policies that exceed a specified percentage of their collateral. However, insurance companies are not required to keep collateral against reinsured policies.

In order to manage their operations more efficiently, most insurance companies surrender some of their risks to a reinsurance programme.

  • Facultative reinsurance coverage protects a cedent insurance company for a certain individual or a specified risk or contract. If several risks or contracts need facultative reinsurance, each is negotiated separately. The reinsurer has all rights to accept or deny a facultative reinsurance proposal.
  • A reinsurance treaty is effective for a set period rather than on a per-risk or contract basis. The reinsurer covers all or a portion of the risks that a cedent insurance company may incur.
  • Under proportional reinsurance, the reinsurer receives a prorated share of all policy premiums sold by the cedent. When claims are made, the reinsurer covers a portion of the losses based on a pre-negotiated percentage. The reinsurer also reimburses the cedent for processing, business acquisition, and writing costs.
  • With non-proportional reinsurance, the reinsurer is liable if the cedent’s losses exceed a specified amount, known as the priority or retention limit. As a result, the reinsurer does not have a proportional share in the ceding insurer’s premiums and losses. The priority or retention limit may be based on one 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 contract is typically applied to catastrophic events, covering the cedent either on a per-occurrence basis or for the cumulative losses within a set period.
  • Under risk-attaching reinsurance, all claims established during the effective period are covered, regardless of whether the losses occurred outside the coverage period. No coverage is provided for claims originating outside the coverage period, even if the losses occurred while the contract was in effect.

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Cedent. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
June 27, 2022 https://payrollheaven.com/define/cedent/.
Chicago Manual of Style (CMS):
Cedent. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
https://payrollheaven.com/define/cedent/ (accessed: June 27, 2022).
American Psychological Association (APA):
Cedent. PayrollHeaven.com. Retrieved June 27, 2022
, from PayrollHeaven.com website: https://payrollheaven.com/define/cedent/

Definition Sources

Definitions for Cedent are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 20th January, 2022 | 10 Views.