Retrocession
This refers to the reinsuring of a reinsurance contract. As reinsurance is insurance for insurance, retrocessional, or retro protection is reinsurance for reinsurance.
Over time, the retrocession reinsurance market has increasingly come to depend on the capital markets and insurance-linked securities (ILS).
Following the large loss events of 2017, alternative, or third-party capital in reinsurance played a vital role in companies’ retrocession recoveries, underlining its dominance in the sector, with traditional players increasingly leveraging third-party capital backed retrocession.
As of mid-year 2022, global retrocession capacity has been estimated to be as high as $60bn, around $20bn of which is indemnity based and the rest in other formats.
The alternative capital markets and ILS funds, or investors, play a significant role in global retrocession, as too do instruments such as catastrophe bonds and industry-loss warranties (ILW).
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