YOU ASK:
What is the definition of Primary Company?
WE ANSWER:
The Primary Company is the insurance company that ceded a portion of the insurance risk to a reinsurance company.
An insurance company would like to limit its exposure to the risk it accepts and instead spread the risk to one or more reinsurance companies. In this case, the insurance company becomes the primary company or ceding company, while the reinsurance company is called the assuming company. The reinsurance company receives the portion of the premium in proportion to the risk being accepted and it will also be responsible for paying the proportion of the claim when the covered risk does happen.
By spreading the risk, the primary company reduces its risk profile and improves its financial position.
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