Ceding company is an insurance company that transfers the insurance portfolio to a reinsurer. So, it is an insurance company that passes the part or all of its risks from its insurance policy portfolio to a reinsurance firm. The insurer, however, is liable to pay the claims in the event of default by the reinsurer. Passing off risk in this manner allows the ceding company to hedge against undesired exposure to loss and frees up capital to use in writing new insurance contracts. So, these are the insurance company that transfers the insurance it has written to another insurance company.
The ceding company retains liability for the reinsured policies, so although claims should be reimbursed by the reinsurance firm, if the reinsurance company defaults, the ceding company may still have to make a payout on reinsured policy risks. Insurance firms are exposed to unexpected losses due to extreme revelation to high-risk entities. Reinsurer provides the ceding company with the manifold settlement in the form of a reduction in the accountability and security against big losses.
