Glossary

Retrocession

Reinsurance bought by a reinsurer to pass part of the risk it has assumed to other reinsurers or investors, usually to manage peak catastrophe exposure.

Also called: retro, retrocessional reinsurance, retro reinsurance, retrocessionaire

Retrocession is reinsurance for reinsurers. A reinsurer that has taken on a large volume of risk, such as hurricane and earthquake exposure from many cedents, passes part of it to another party, the retrocessionaire. The reinsurer ceding the risk is the retrocedent. The mechanics mirror ordinary reinsurance, proportional or excess of loss, treaty or facultative, but the book being protected is itself reinsurance.

The reason is accumulation. A reinsurer's clients tend to buy protection for the same regions, so one large storm or quake can hit many contracts at once. Retrocession caps the reinsurer's loss from an event or a year and frees capital to write more business. Excess-of-loss covers on an annual aggregate or per-event basis are common for peak zones.

Capacity comes from other reinsurers and from alternative capital: sidecars, collateralized reinsurance and insurance-linked securities funds. The retro market is thinner and more volatile than the primary reinsurance market, and capacity can tighten and prices rise quickly after heavy catastrophe years.

A business buyer never purchases retrocession, but its cost and availability flow back through reinsurers into the capacity available to insurers, and eventually into the price of property catastrophe coverage. The guide on Sidecars, collateralized reinsurance and ILS funds explained explains the alternative capital that backs retro, and what is reinsurance, and why it affects your business premium covers the layer below it. See sidecar for one common structure.

Last reviewed October 10, 2026

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Related terms

Cedent The insurer that passes part of its risk and premium to a reinsurer, and stays liable to its own policyholders for the whole. Treaty reinsurance A reinsurance contract that automatically covers a defined portfolio of an insurer's policies, instead of reinsuring one risk at a time. Sidecar A special-purpose vehicle funded by outside investors that takes a share of an insurer's or reinsurer's business for a set term, usually collateralized. Catastrophe bond A security sold to investors that pays interest but loses principal if a defined catastrophe occurs, giving an insurer or reinsurer multiyear protection. Facultative reinsurance Reinsurance negotiated for one specific risk or policy rather than a whole book of business, usually because the risk is large or unusual.

Related guides

The world's largest reinsurers: 2026 rankings and what they mean AM Best's 2026 ranking of the world's largest reinsurers, with Munich Re first, how to read it, and why the names matter when you buy U.S. commercial coverage. Sidecars, collateralized reinsurance and ILS funds explained How investor-backed reinsurance works: sidecars, collateralized contracts and ILS funds, with 2026 capital figures and what they mean for your coverage. Treaty vs facultative reinsurance: how insurers share risk Treaty reinsurance covers a whole book automatically; facultative covers one risk by negotiation. How each works, a worked split, and what it means for buyers.