What is the primary role of a ceding company in the insurance industry?

The primary role of a ceding company in the insurance industry is to transfer part of its liability to a reinsurer. This process, known as reinsurance, allows the ceding company to limit its exposure to risk by sharing potential losses with a reinsurer. By transferring a portion of its risk, the ceding company can stabilize its financial performance and protect itself against large claims that could otherwise threaten its solvency.

In the context of the insurance industry, the ceding company plays a crucial role in managing risk. By doing so, it can write more policies and take on larger risks than it would be able to handle alone. This transfer of risk is essential for maintaining a healthy insurance market, as it helps insurers remain financially stable while providing coverage to policyholders.

Other roles in the insurance process, such as selling policies, managing claims, or creating endorsements, are important but do not define the primary function of a ceding company in the realm of reinsurance. The ceding company’s main focus is on reassessing and mitigating risk through its relationship with reinsurers.