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Simple English definitions for legal terms
retrocessional agreement
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A quick definition of retrocessional agreement:
A retrocessional agreement is a contract that allows for the insurance of insurance. This means that a company can transfer some of the risk it has taken on through reinsurance to another company, which in turn can transfer that risk to yet another company. It's like a game of hot potato, but with risk instead of a potato!
A more thorough explanation:
A retrocessional agreement is a type of reinsurance agreement. It involves a reinsurer (the retrocessionaire) agreeing to take on some of the risks that another reinsurer (the cedent) has already taken on. Essentially, the retrocessionaire is reinsuring the reinsurance.
For example, let's say that a primary insurer (the cedent) has taken on a large amount of risk for a particular policy. To reduce their exposure, they may seek out a reinsurer to take on some of that risk. However, the reinsurer may not want to take on all of that risk themselves, so they may enter into a retrocessional agreement with another reinsurer to share the risk.
Another example could be a situation where a reinsurer has taken on a large amount of risk from multiple cedents. To reduce their own exposure, they may seek out a retrocessionaire to take on some of that risk.
Overall, retrocessional agreements are a way for reinsurers to manage their own risk by sharing it with other reinsurers.