What might be a reason a ceding insurer would seek reinsurance?

A ceding insurer seeks reinsurance primarily to manage risk exposure and potential losses. When an insurer underwrites policies, it takes on the risk associated with those policies. By engaging in reinsurance, the insurer can transfer some of that risk to a reinsurer, effectively spreading it out and relieving the insurer of a portion of the financial exposure associated with large claims or catastrophic events. This risk management strategy allows the ceding insurer to stabilize its financial position, ensure solvency, and maintain adequate reserves, which is critical for the health and sustainability of the insurance company.

Choosing to seek reinsurance does not inherently aim to increase overall premiums or reduce total insurance claims directly; rather, it focuses on maintaining balance in risk versus return so that insurers can effectively manage unforeseen losses. Additionally, reinsurance does not eliminate all financial liabilities for the ceding insurer; it merely mitigates some risk. Therefore, pursuing reinsurance is a strategic decision to strengthen the insurer's ability to pay claims and manage liability, but it does not absolve them of all financial responsibilities.