Journal entries relating to re-insurance business ceded to and by an insurance company

A re-insurance business transaction may be defined as an agreement between a ceding company and re-insurer, whereby the former agrees to cede and the latter agrees to accept a certain specified share of risk or liability upon terms as set out in the agreement. The accounting entries pertaining to re-insurance business ceded to and by an insurance company may be explained with the help of an example given below:

(X insurance company cedes re-insurance business to Y insurance company and Z insurance company cedes re-insurance business to X insurance company.) Accounting entries pertaining to re-insurance business ceded to and by X insurance company in the above example may be given as follows :

1. Re-insurance Premium (on re-insurance ceded) Account Dr.
To Y Insurance Company
(Being premium on re-insurance business ceded to Y insurance company recorded)

2. Z Insurance Company Dr.
To Re-insurance Premium (on re-insurance accepted) Account
(Being premium on business ceded by Z insurance company recorded)

3. Y Insurance Company Dr.
To Claims (on re-insurance ceded) Account
(Being claims receivable from Y Co. for part of insurance business ceded)

4. Claims (on re-insurance accepted) Account Dr.
To Z Insurance Company
(Being claims on re-insurance business accepted from Z Company recorded

5. Y Insurance Company Dr.
To Commission (on re-insurance ceded) Account
(Being commission due on re-insurance business ceded to Y insurance company recorded)

6. Commission (on re-insurance accepted) Account Dr.
To Z Insurance Company
(Being commission due on re-insurance business ceded to Z Company debited)