Reinsurance Cession Calculator
This calculator computes the ceded premium, ceding commission received, net ceded premium, and ceded (recoverable) loss for a proportional quota share reinsurance treaty. Reinsurance allows primary insurers to share risk with reinsurers, freeing up capital and limiting exposure to large losses. In a proportional arrangement, the cession rate determines what percentage of each dollar of premium is ceded and what percentage of each loss dollar is recovered. The calculator shows both gross and net figures for the cedant's income statement and balance sheet.
Reinsurance cession formulas
Ceded premium = Gross premium x Cession rate
Ceding commission = Ceded premium x Commission rate
Net retained premium = Gross premium - Ceded premium + Ceding commission
Ceded loss recovery = Gross loss x Cession rate
The cession rate applies equally to both premium and losses in a proportional treaty. The net retained premium equals gross premium less ceded premium plus ceding commission received back.
How reinsurance cessions affect insurer financials
- Ceded premium reduces the cedant's top-line revenue but also reduces its loss exposure proportionally.
- The ceding commission partially offsets the cost of ceding premium, allowing the cedant to cover its acquisition costs.
- Net retention = Gross premium x (1 - Cession rate) + Ceding commission. This must cover the retained loss costs and insurer overhead.
- A higher cession rate provides more protection but costs more net premium income; the optimal rate balances capital relief against economic cost.
- Reinsurance recoverables (ceded loss recovery amounts) appear as assets on the cedant's balance sheet, subject to reinsurer creditworthiness.
Reinsurance cession: frequently asked questions
What is a reinsurance cession?
A cession is the transfer of a portion of an insurance risk from the primary (ceding) insurer to a reinsurer. The ceding insurer pays a ceded premium to the reinsurer; in return, the reinsurer pays a proportional share of covered losses. The cession reduces the primary insurer's net retained risk and net retained premium.
What is the difference between proportional and excess-of-loss reinsurance?
Proportional (quota share) reinsurance cedes a fixed percentage of every premium and loss. Excess-of-loss (XOL) reinsurance cedes only losses above a retention threshold (attachment point) up to a limit. Proportional reinsurance provides premium relief; XOL provides per-occurrence catastrophe protection.
What is a ceding commission?
In proportional reinsurance, the reinsurer pays a ceding commission back to the cedant to reimburse the cedant for policy acquisition and administration expenses. It is expressed as a percentage of ceded premium. For example, a 25 percent ceding commission on $100,000 of ceded premium returns $25,000 to the cedant.
How does quota share reinsurance work?
Under a quota share treaty, the cedant cedes a fixed percentage (the cession rate) of every policy's premium and loss. If the quota share is 40 percent, the reinsurer pays 40 percent of every loss and receives 40 percent of every premium. Net retention = 100 percent minus the cession rate.
What is the reinsurer's loss ratio?
The reinsurer's loss ratio is the ceded (recoverable) losses divided by the net ceded premium (ceded premium minus ceding commission). If this exceeds 100 percent, the reinsurer has an underwriting loss on the cession. A sliding scale commission adjusts the ceding commission inversely with the loss ratio.
Official sources
- NAIC: NAIC Consumer Resources.
- Society of Actuaries: SOA Homepage.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.