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Cession ratio

Proportion of gross premiums ceded to reinsurers, measuring the degree of risk transfer.

Definition

The cession ratio, or cession rate, is ceded premium divided by gross written premium, expressed as a percentage. It measures the share of risk the insurer transfers to reinsurance. The formula fits on one line: cession ratio = ceded premium / gross written premium (GWP). Its complement is the retention ratio, the share of premium the cedant keeps for its own account, so a 35% cession leaves 65% retained. It is often confused with the quota share percentage written into a treaty. That figure applies only to the covered book, while the cession ratio rolls up the whole program, quota shares, excess of loss and facultative included, across every line. A high cession ratio, above 40%, signals heavy reliance on reinsurance, typically seen in captives, start-ups or insurers specializing in catastrophe risks. Rating agencies watch it as a gauge of standalone financial strength, since a cedant that leans hard on reinsurance carries counterparty risk on its reinsurers. The ratio also varies by treaty type, 100% in fronting arrangements, 30% to 50% on a standard quota share.

Its 9 cross-references, woven across the glossary's 18 categories
Cession ratio: Reinsurance glossary illustration, AlgoPolis
Example

Worked example: GWP of EUR 10M, ceded premium of EUR 3.5M, cession ratio = 35%. Net premium = EUR 6.5M. A ratio above 100% is close to impossible by construction: it would mean ceding more premium than was written.

Read next
ReinsuranceCeded premiumsThe share of premium a cedant pays its reinsurers in return for their share of the losses.Read the entry →ReinsuranceNet premiumsGross premiums less ceded premiums, representing the premium income actually retained by the cedant.Read the entry →ReinsuranceRetentionThe share of a risk that a cedant or insured keeps for its own account before any cession, the central trade-off between the cost of protection and capital tied up.Read the entry →
Put it to work
QuizModule check: the treaty looks at the risk, not the lossAcademy questions on this concept, each one marked and explained.Test yourself →
Related terms
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Also known as

cession ratio, cession rate, cession percentage, cession ratio formula, reinsurance cession ratio, ceded premium ratio, reinsurance dependence ratio

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