SOA•LPM

Basic Terms and Concepts reinsurance: Reinsurance refers to insurance purchased by an insurance company to cover all or part of certain risks on insurance policies issued by that company. cession: The portion of the risk transferred on an individual policy or contract is known as a cession. reinsurer: Reinsurer agrees to indemnify another insurance company, referred to as the ceding company. retrocession: Retrocession refers to the process by which a reinsurance company purchases an insurance scheme from another reinsurance company to cover its risks. retrocessionaire: A reinsurance company that accepts or takes a retrocession. reinsurance treaty: The risks transferred and terms of the arrangement are defined in a written legal agreement between the ceding company and the reinsurer; this agreement is commonly known as a reinsurance treaty. graph LR A(Individual) — “pays premiums purchases insurance policies” –> B([Ceding Company]) B — “provides policy benefits” –> A B — “pays premiums sells policy to individual and cedes to reinsurer” –> C([Reinsurer]) C — “provides policy benefits” –> B C — “pays premiums accepts risk from Reinsurer” –> D([Retrocessionaire]) D — “provides policy benefits” –> C The fundamental principle of reinsurance is that a transfer of an insurance risk occurs. graph LR A{{reinsurance}} …

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