retrocession

Retrocession is when an insurance company or a reinsurance company transfers part of its risk to another insurer, called a retrocessionaire. Think of it as a chain: the original insurer cedes some risk to a reinsurer, and then the reinsurer, in turn, passes some of that risk further along to another reinsurer. This process helps spread out potential claims, manage large risks, and stabilize financial stability for insurers. Essentially, retrocession is reinsurance for reinsurers, allowing them to limit their exposure to large or complex risks.