Retrocession
Reinsurance purchased by a reinsurer to protect its own book. The 'reinsurance of reinsurance'.
Retrocession is reinsurance purchased by a reinsurer to protect its own portfolio from catastrophe losses — effectively the "reinsurance of reinsurance". The party buying retrocessional cover is the retrocedant; the provider is the retrocessionaire.
Retrocession plays a critical role in the reinsurance cycle. After major events, retrocessional capacity can tighten severely, constraining the amount of catastrophe risk reinsurers are willing to write. ILS capital is an important retrocessional capacity provider, with ILS funds often acting as the ultimate risk absorber.
The retrocessional market is smaller and more concentrated than the primary reinsurance market, making pricing more volatile and capacity more subject to withdrawal after large events.
Example usage
“Swiss Re purchased $2bn of retrocessional protection to cap its net catastrophe exposure following significant growth in its property cat book.”
Frequently asked questions
What is Retrocession?
Reinsurance purchased by a reinsurer to protect its own book. The 'reinsurance of reinsurance'. Retrocession is reinsurance purchased by a reinsurer to protect its own portfolio from catastrophe losses — effectively the "reinsurance of reinsurance". The party buying retrocessional cover is the retrocedant; the provider is the retrocessionaire.
How is Retrocession used in practice?
Swiss Re purchased $2bn of retrocessional protection to cap its net catastrophe exposure following significant growth in its property cat book.
More Reinsurance terms