====== Reinsurance ======
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**reinsurance**: Reinsurance refers to insurance purchased by an insurance company to cover all or part of certain risks on insurance policies issued by that company.

**cession**: The portion of the risk transferred on an individual policy or contract is known as a cession.

**reinsurer**: Reinsurer agrees to indemnify another insurance company, referred to as the **ceding company**.

**retrocession**: Retrocession refers to the process by which a reinsurance company purchases an insurance scheme from another reinsurance company to cover its risks.

**retrocessionaire**: A reinsurance company that accepts or takes a retrocession.

**reinsurance treaty**: The risks transferred and terms of the arrangement are defined in a written legal agreement between the ceding company and the reinsurer; this agreement is commonly known as a reinsurance treaty.

<mermaid>

graph LR
    A(Individual) -- "pays premiums <br> purchases insurance policies" --> B([Ceding Company])
    
    B -- "provides policy benefits" --> A
    
    B -- "pays premiums <br> sells policy to individual and cedes to reinsurer" --> C([Reinsurer])
    
    C -- "provides policy benefits" --> B

    C -- "pays premiums <br> accepts risk from Reinsurer" --> D([Retrocessionaire])
    
    D -- "provides policy benefits" --> C

</mermaid>

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===== The Fundamental Principle of Reinsurance =====
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The fundamental principle of reinsurance is that **a transfer of an insurance risk occurs**.

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What drives reinsurance transactions?

The transfer of some level of **insurable economic risk** drives all reinsurance transactions; otherwise the transaction is financing, not reinsurance.


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