BENEFIT OF CESSION Meaning and
Definition
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Benefit of cession refers to the advantage or benefit that is gained through the transfer of rights or responsibilities by one party to another. It is commonly used in the context of insurance and financial transactions.
In insurance terms, benefit of cession specifically relates to the insurance company's decision to transfer some of its risks to a reinsurer. Reinsurance is a process in which an insurance company transfers some portion of the risk it has assumed through underwriting policies to another insurance company, called the reinsurer. This transfer helps the primary insurance company to mitigate the potential losses that may occur from large or catastrophic events.
The benefit of cession for the primary insurer includes reducing its exposure to risk, gaining access to additional capital or resources, and obtaining better financial stability. By transferring a part of the risks, the primary insurer can maintain a healthier balance sheet and ensure its ability to meet claim obligations. Additionally, benefit of cession allows the primary insurer to underwrite more policies and handle a broader range of risks, which ultimately leads to an increase in revenue and growth opportunities.
Overall, benefit of cession plays a vital role in the risk management strategy of insurance companies, providing them with the advantages of financial protection, capital reinforcement, and expansion possibilities.
