Retrocession

What is 'Retrocession'

1. The practice of one reinsurance company essentially insuring another reinsurance company by accepting business that the other company had agreed to underwrite.

2. The voluntary act of returning ceded property from one group to another. Retrocession can also be the result of a request to have property returned but, by definition, is not the result of a forced transaction.

3. The process of differentiating or diversifying assets by consolidating and then subdividing them amongst a number of stakeholders.

BREAKING DOWN 'Retrocession'

1. When one reinsurance company has other reinsurance companies partially underwrite some of its reinsurance risk, it essentially diversifies its risk portfolio and limits its potential losses as a result of a catastrophe. For example, if a hurricane causes widespread damage to businesses, homes, automobiles and lives, a single insurer could face bankruptcy without retrocession.

2. The best known international act of retrocession is when Hong Kong was given back to the Chinese from the British in 1997.

3. Hedge funds often buy very valuable single assets and divide them on a pro-rata basis amongst partnership unitholders. Just as risk and liabilities can be retroceded, so can assets.

RELATED TERMS
  1. Reinsurance Ceded

    The portion of risk that a primary insurer passes to a reinsurer. ...
  2. Lead Reinsurer

    The reinsurer responsible for negotiating the terms and rates ...
  3. Reinsurance Ticket

    A notification made by an insurer which discloses the different ...
  4. Yearly Renewable Term Plan of Reinsurance

    A type of life reinsurance where mortality risks are transferred ...
  5. Excess Of Loss Reinsurance

    A type of reinsurance in which the reinsurer indemnifies the ...
  6. Obligatory Reinsurance

    A reinsurance treaty in which the ceding insurer agrees to send ...
Related Articles
  1. Personal Finance

    When Things Go Awry, Insurers Get Reinsured

    Guru Warren Buffett is making this sector popular. Learn more here.
  2. Markets

    5 Reinsurance Stocks To Watch

    Due to the decline in the reinsurance sector, many stocks within the sector are now trading at historic lows relative to book value. For investors, the time may be right to pounce on the values.
  3. Investing

    The Industry Handbook: The Insurance Industry

    As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of ...
  4. Markets

    Berkshire Hathaway Stock: Analyzing 5 Key Customers (BRK)

    Discover how Berkshire Hathaway began as a failing textile company and grew into the fifth-largest company worldwide with help from its key customers.
  5. Markets

    XL Group Seems To Be Back On The Right Track

    XL is a different company now, but still needs a better ROE to be a long-term winner.
  6. Trading

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  7. Personal Finance

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.
  8. Markets

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
  9. Personal Finance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  10. Personal Finance

    Event-Linked Bonds: Competing Against A Catastrophe

    These debt instruments can blow new wind into your portfolio, but only if you can handle the risk.
RELATED FAQS
  1. Why do some companies in the insurance sector engage in reinsurance?

    Discover how some companies in the insurance sector engage in reinsurance. Reinsurance allows insurance companies to transfer ... Read Answer >>
  2. What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit ... Read Answer >>
  3. What risks do I face when investing in the insurance sector?

    Read about the unique challenges faced by insurers, and learn how those challenges manifest themselves as risks for equity ... Read Answer >>
  4. What is the financial services sector?

    Go beyond banks and credit unions to learn about the diverse group of companies that make up the fast-growing financial services ... Read Answer >>
  5. What demographic trends are creating potential profits for insurance companies?

    Discover the ways in which insurance companies can profit from demographic trends. Two major ones are aging populations and ... Read Answer >>
  6. How does the insurance sector work?

    Learn more about the insurance sector, a historically safe place for equity investors and the home of some of the largest ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center