General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
In a reinsurance arrangement, the insurer that transfers a portion of its risk to a reinsurer is called the:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The ceding company is the primary insurer that transfers, or cedes, a portion of its risk to a reinsurer in exchange for a portion of the premium. Reinsurance allows the ceding company to limit its exposure on individual large risks or catastrophic events while retaining its direct relationship with the policyholder. The reinsurer assumes the ceded risk and is not a party to the original policy contract with the insured. This risk transfer reduces the ceding company's need for surplus and stabilizes its loss experience.
Why the other options are wrong
- B) The reinsurer is the party that assumes the ceded risk. It receives the risk transferred by the ceding company rather than transferring it. This contradicts the governing rule explained above and therefore cannot be the correct answer.
- C) A beneficiary is a party entitled to receive policy proceeds. The reinsurance relationship involves the ceding company and the reinsurer, not a beneficiary. The controlling legal standard set out above demonstrates precisely why this option is incorrect.
- D) A surplus lines broker is a market intermediary for placing coverage with nonadmitted insurers. It is not the insurer that transfers risk in reinsurance. This choice misstates what the statute actually requires, so it must be eliminated from consideration.
Memory hook
Ceding company cedes risk away; the reinsurer catches it. Cede = hand over part of the exposure.