In reinsurance, what does the term "ceding" refer to?

Ceding in reinsurance refers to the process where an insurance company (the cedent) transfers a portion of its risk or liability to another insurer (the reinsurer). This is done primarily to manage risk exposure and ensure financial stability, allowing the insurance company to cover larger or riskier policies without the burden of retaining all potential losses. By ceding risk, the primary insurer can protect itself from catastrophic losses and maintain solvency.

In the context of reinsurance, this practice is essential for spreading risk among multiple parties, enhancing the overall capacity of insurers to underwrite new policies. This transfer of risk also allows the ceding company to obtain additional financial resources and improve its underwriting practices.

The other options do not capture the essence of ceding. Retaining all risk contradicts the purpose of ceding, which is about transferring risk. Acting as a wholesaler does not pertain to the concept of reinsurance and risk transfer. Lastly, increasing premiums is a pricing strategy unrelated to the foundational concepts of ceding in reinsurance.