Category: Reinsurance fundamentals · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed 2026-06-05
Ceded premium is the amount of premium paid by a cedant to a reinsurer in consideration of the reinsurance cover the reinsurer provides under a treaty or facultative reinsurance contract. It is the reinsurer’s principal source of income and the cedant’s principal cost of risk transfer.
Category: Reinsurance fundamentals Also known as: reinsurance premium, cession premium Related concepts: cedant, reinsurance commission, reinsurance recoverable Related legislation: Solvency II Directive 2009/138/EC; IFRS 17
Ceded premium is calculated by reference to the structure of the reinsurance contract. In a quota share treaty it is a fixed percentage of the gross written premium of the cedant’s portfolio that falls within the scope of the treaty. In a surplus treaty it is calculated by reference to the proportion of each individual risk that exceeds the cedant’s line. In excess of loss reinsurance it is typically expressed as a ‘rate on line’ (a percentage of the contract limit) or as a percentage of the cedant’s subject premium income.
Ceded premium is normally stated gross of reinsurance commission. The reinsurer pays the cedant a ceding commission — typically 25–35 per cent — to compensate the cedant for the cost of acquiring and administering the underlying business, with the net premium retained by the reinsurer being correspondingly lower.
The accounting treatment of ceded premium is governed by IFRS 17 (Insurance Contracts) for cedants reporting under IFRS, and by FRS 103 for those reporting under UK GAAP. Under IFRS 17 ceded premium is recognised over the coverage period of the underlying reinsurance contract, with the reinsurance asset measured on a basis broadly consistent with the underlying insurance liability.
Under Solvency II the ceded premium reduces the cedant’s gross written premium for SCR calculation purposes — the SCR is generally calculated on a net of reinsurance basis, recognising the risk-mitigating effect of the cession [1]. The PRA Insurance Rulebook contains detailed rules on the recognition of reinsurance for technical provisions purposes.
In treaty reinsurance ceded premium is typically settled quarterly in arrears, by means of a treaty statement (or ‘bordereau’) prepared by the cedant. The bordereau details premiums ceded, claims paid, commissions and adjustments, with the net amount settled by inter-company transfer.
In excess of loss reinsurance ceded premium is normally settled at inception (the ‘deposit premium’) with an adjustment at year end based on actual subject premium income. Where the actual income exceeds the estimated income, the cedant pays an additional premium; where it falls short, the reinsurer refunds the excess up to a contractual minimum premium.
Reinstatement premium is a separate category of ceded premium payable to restore exhausted XL cover during the policy year. Reinstatement provisions vary: free (no additional premium), pro rata as to amount and time, or full annual premium for each reinstatement.
An illustrative example: a UK motor insurer cedes 30 per cent of its £500m motor portfolio under a quota share treaty. The ceded premium of £150m is paid to the reinsurer quarterly net of a 30 per cent ceding commission (£45m), leaving a net cash settlement to the reinsurer of £105m. In a poor underwriting year the reinsurer’s losses on the treaty may exceed the net premium received, while in a good year the reinsurer may also pay profit commission to the cedant under a separate clause.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
Get a quote