The portions of the obligations in an insurance company's policy portfolio that are transferred to a reinsurer. Risk can be transferred to the reinsurer in one of two ways: proportional or non-proportional. Proportional reinsurance is an arrangement where the insurer and reinsurer share an agreed percentage of both premiums and losses. Non-Proportional reinsurance is a system by which the reinsurer pays only when losses are over an agreed-upon amount.

The reinsurance industry has become increasingly sophisticated due to competition within the insurance industry. Reinsurance creates an opportunity for insurer and reinsurers to profit at each others' expense based on the accuracy of the actuarial calculations which price the risk incurred. For example, suppose a reinsurer believes the risk of loss on a certain coverage is less than is actually the case. If an insurer has a more accurate risk model, he can recognize that a reinsurer is undercharging for this coverage. In this case, the insurer simply sells the policies to customers at the higher rate and buys reinsurance at the lower rate, locking in an arbitrage profit.

Investment dictionary. . 2012.


Look at other dictionaries:

  • cession — [ sesjɔ̃ ] n. f. • 1266; lat. cessio, de cedere → céder ♦ Dr. Action de céder (un droit, un bien) à titre onéreux, ou à titre gratuit. ⇒ transmission; donation, transfert, transport, vente. Acte de cession. Cession de qqch. à qqn (par qqn).… …   Encyclopédie Universelle

  • cession — ces·sion / se shən/ n 1: an act of ceding: a yielding (as of property) to another: as a in the civil law of Louisiana: assignment or transfer of property rights by a debtor to a creditor b: transfer of liability by an insurer to a reinsurer c:… …   Law dictionary

  • cession — CESSION. s. f. Transport, démission. Faire cession de son droit. [b]f♛/b] On dit, Faire cession de biens, ou simplement, Faire cession, pour dire, Abandonner ses biens à ses créanciers en vertu des Lettres du Prince, pour avoir la liberté de sa… …   Dictionnaire de l'Académie Française 1798

  • Cession — Ces sion, n. [L. cessio, fr. cedere to give way: cf. F. Cession. See {Cede}.] 1. A yielding to physical force. [Obs.] Bacon. [1913 Webster] 2. Concession; compliance. [Obs.] [1913 Webster] 3. A yielding, or surrender, as of property or rights, to …   The Collaborative International Dictionary of English

  • cession — ces‧sion [ˈseʆn] noun [countable, uncountable] LAW when a person, company, or country officially gives property, land, or rights to someone else: • Russia was vehemently opposed to cession of the Liaodong Peninsula. see also cede * * * cession… …   Financial and business terms

  • cession — late 14c., from O.Fr. cession cession; death (13c.), from L. cessionem (nom. cessio) a giving up, surrendering, noun of action from pp. stem of cedere to go away, yield (see CEDE (Cf. cede)) …   Etymology dictionary

  • cession — Cession. s. f. verbal, Transport, demission. Faire cession de son droit. Faire cession, signifie, Abandonner en vertu des Lettres du Prince ses biens à ses Creanciers, faute de les pouvoir payer, pour avoir la liberté de sa personne …   Dictionnaire de l'Académie française

  • cession — Cession, Cessio. Faire cession, Bonis cedere, Perfugere ad aram cessionis …   Thresor de la langue françoyse

  • Cession — (v. lat., Rechtsw.), ein Rechtsact, wodurch das, einem Gläubiger gegen seinen Schuldner zustehende Forderungsrecht einem Dritten zur Geltendmachung für sein Interesse abgetreten wird. Der Gesichtspunkt, von welchem das gemeine Recht dabei ausgeht …   Pierer's Universal-Lexikon

  • Cession — (lat.), s. Zession …   Meyers Großes Konversations-Lexikon

  • cession — ► NOUN ▪ the formal giving up of rights, property, or territory by a state. ORIGIN Latin, from cedere cede …   English terms dictionary

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