New Jersey Life Producer Practice Exam

What term describes an insurer procuring insurance for itself from another insurer?

1. Subrogation insurer

2. Ceding insurer

3. Retained insurer

4. Excess insurer

The correct answer is: Ceding insurer

The term that describes an insurer procuring insurance for itself from another insurer is "ceding insurer." This occurs when an insurance company, known as the ceding insurer, transfers portions of its risk to another company, usually through a process called reinsurance. In this arrangement, the ceding insurer effectively shares its risk exposure and can manage its liabilities more effectively, while the reinsurer assumes some of the risks associated with the policies issued by the ceding insurer. Reinsurance is a critical aspect of the insurance industry as it helps companies protect themselves from catastrophic losses and stabilize their financial performance. This relationship allows the ceding insurer to retain some control over its underwriting decisions while gaining the security and support of additional capital from the reinsurer. Understanding the role of a ceding insurer is essential for those involved in the insurance field, especially in managing risk and resources effectively.