CEDING COMPANY

Insurance company handing over a portion or all of its risks from its insurance policy to another reinsurance firm. Transferring the risk allows the ceding company to hedge against unwanted exposure to loss and use capital in writing new insurance contracts. The firm keeps liability for reinsured policies although the reinsurance company must reimburse claims. Should the reinsurance firm default, the ceding firm may still need to payout reinsured policy risks.