Insurance Broker Certification Practice Exam

Who is referred to as the ceding insurer?

1. The reinsurer that accepts the risk

2. The insurance company that procures reinsurance

3. The policyholder seeking coverage

4. The broker who facilitates the sale

The correct answer is: The insurance company that procures reinsurance

The ceding insurer is defined as the insurance company that procures reinsurance. In the context of reinsurance, the ceding insurer transfers a portion of its risk to another insurer, known as the reinsurer. This process helps the ceding insurer manage its risk exposure effectively. Reinsurance arrangements are crucial for insurance companies as they allow them to maintain financial stability while offering comprehensive coverage to policyholders. By ceding a portion of the risk, the ceding insurer can free up capital, improve its ability to underwrite new insurance policies, and protect itself from large financial losses. Understanding this relationship is vital for those studying insurance brokerage, as it illustrates a key aspect of risk management within the insurance industry. The other roles mentioned in the question, such as the reinsurer, the policyholder, and the broker, have distinct functions and do not represent the entity responsible for procuring the reinsurance.