Reinsurance ceded is a risk management technique used by primary insurance companies, enabling them to reduce the overall risk within their portfolios. In this process, the primary insurance company (referred to as the ceding company) transfers some of the risk associated with a particular policy to another insurance company (the reinsurer). This process can be undertaken for any type of policy but is most commonly used for large, high-risk policies like life insurance and property & casualty.

The ceding company is responsible for the day-to-day administration of the policy, and remains the point of contact for the policyholder. The reinsurer, while not responsible for the policy administration or customer relationship, still bears a share of the risk attached to the policy in return for a premium payment. This risk transfer can reduce the effects of catastrophic claims, and thus reduces the financial burden of insurance companies – helping to ensure their solvency in the long-term.

Reinsurance is seen as a form of partnership between insurance companies as both companies have a stake in the value of taking on and carrying the risk associated with the policy. By spreading the risk associated with large policies, reinsurance lowers the premiums payable by the policyholder and gives the primary insurer access to greater levels of coverage than they would be able to provide on their own. Companies which focus on providing reinsurance coverage are known as reinsurers, and specialize in particular types of coverage.

In summary, reinsurance ceded is an important risk management technique which enables insurance companies to reduce the risks associated with high-value policies, by spreading the responsibility between two or more insurers. This process has a number of benefits, such as reducing the financial burden of catastrophic claims, offering increased coverage to the policyholders, and providing financial security for the primary insurer. Reinsurance ceded is a vital component of the modern insurance industry, and continues to be an effective way to manage risk.