---
title: what reinsurance cannot cede
canonical_url: https://ensurance.app/guide/what-reinsurance-cannot-cede
markdown_url: https://ensurance.app/guide/what-reinsurance-cannot-cede.md
subtitle: "reinsurance prices, layers and spreads the loss. part of that loss is set by the forest, floodplain, marsh, reef and soil under the exposure, and a reinsurance contract does not pay for their condition"
category: nature-finance
---

# what reinsurance cannot cede

*reinsurance prices, layers and spreads the loss. part of that loss is set by the forest, floodplain, marsh, reef and soil under the exposure, and a reinsurance contract does not pay for their condition*

**Reinsurance** is insurance bought by insurers. A primary carrier (the cedent) passes part of the risk it has written to a reinsurer in exchange for part of the premium, so one bad season does not empty its balance sheet. It is how a hurricane in Florida or a hailstorm in Texas gets paid for out of capital held in Zurich, Munich, Hamilton and London. It works, and the property market could not run without it. What it does not do is pay for the forest fuel above a town, the floodplain beside a river, the marsh in front of a street, the reef crest off a beach or the soil that takes in rain (parametric reef covers in Quintana Roo and the Mesoamerican Reef, which pay after a storm, are the one place we found the market has tried). Those living systems set part of the loss before any contract is signed. They do that work whether or not anyone pays. **Ensurance** is a way for the people they protect to fund their condition; it is not the forest.

:::johnson
**reinsurance can cede the loss. it cannot cede the ground the loss comes from.**

Several of the reinsurer's hardest problems are partly set on the ground. Some are not, and the table below says which.

[See the six problems, sorted →](#the-six-problems-sorted)
:::

## what reinsurance is, in the treaty desk's terms

Reinsurance comes in two forms. **Treaty** reinsurance covers a whole book or class (every homeowners policy in a state, say) under one contract, renewed on set dates such as 1 January, 1 April, 1 June and 1 July. **Facultative** reinsurance covers one risk at a time, negotiated per policy: a refinery, a stadium, a large commercial schedule the treaty excludes.

Either form can be **proportional** or **non-proportional**. In a quota share, the reinsurer takes a fixed share of premium and of every loss; in a surplus treaty the share varies by risk, set by the sum insured against the cedent's retained line. Either way the reinsurer usually pays the cedent a ceding commission. In **excess of loss**, the reinsurer pays only above a retention (where the first layer attaches) up to a limit, layer by layer, and the stack of layers is the tower. Per-occurrence catastrophe excess of loss is the core of property cat. Aggregate covers respond to the sum of many smaller events above an annual retention. Reinsurers then buy their own protection, **retrocession**, from retrocessionaires, including capital markets through [catastrophe bonds](/guide/what-a-catastrophe-bond-actually-is?from=guide) and other [insurance-linked securities](/guide/insurance-linked-securities-are-still-insurance?from=guide).

What it does well is plain: it spreads peak risk across the world, recapitalizes a cedent after the bad year, and lets primary carriers keep writing in places a single balance sheet could not hold.

## the six problems, sorted

The desk's usual list, with a column for whether the land under the exposure plays any part.

| problem | what the desk sees | on the ground? |
|---|---|---|
| 1. Loss trend | Insured nat-cat losses above USD 100bn a year for six straight years (Aon, 2026); Swiss Re sigma 1/2026 puts the real-terms trend at 5–7% a year | **Partly.** Most growth is exposure: values, urbanization, rebuild cost. The ground shapes how hard some perils arrive |
| 2. Secondary perils | Secondary perils (Swiss Re's non-peak group): a record 92% of 2025 insured losses (Swiss Re sigma 1/2026) | **Partly.** Severe convective storm is about half of it (Swiss Re: USD 51bn of USD 107bn in 2025), and hail is weather. Wildfire and flood are partly set by fuel, floodplain and soil (post 2 sorts them peril by peril) |
| 3. The 2023 reset and retention down the tower | Reinsurers moved up towers and cut aggregate covers; cedents kept the frequency losses (S&P Global, 2024) | **Partly.** Much of the retained layer is secondary-peril loss. The wildfire and flood part of it is where the ground matters |
| 4. Model risk | Models learn from a hazard history that is changing; regulators now run climate stress tests | **Partly.** The ground's condition moves first and is often held fixed in a model run |
| 5. Capital and the cycle | Record capital, strong returns, rates falling since 2025 while the loss trend keeps climbing | **No.** Capital supply and pricing discipline are market questions |
| 6. Protection gap and retreat | More than half of 2024's economic nat-cat loss uninsured (Swiss Re sigma 1/2025); carriers such as State Farm pausing new California property applications | **Partly.** Where a place stops being insurable, its land's condition is part of why |

### what the rows mean

**Loss trend.** Swiss Re sigma 1/2026 counts USD 107bn of insured nat-cat loss in 2025 and says the trend implies about USD 148bn for 2026. Verisk's 2026 modeled global insured average annual loss is USD 171bn, with severe convective storm 40% of it. Swiss Re attributes most of the growth to exposure, with climate change amplifying some perils and regions. A floodplain does not stop a city from growing into it.

**Secondary perils.** The Los Angeles wildfires of January 2025 were about USD 40bn insured, the largest insured wildfire loss on sigma records (Swiss Re, 2026). Severe convective storm set a record USD 64bn in 2023 (Swiss Re Institute), and that share is weather. The wildfire and flood share is the part the land decides: fuel load decides how a fire runs, an open or filled floodplain decides where water goes. [Secondary perils are not secondary](/guide/secondary-perils-are-not-secondary?from=guide) takes this apart.

**The reset.** At 1/1/2023, Guy Carpenter's global property cat rate-on-line index (premium as a share of limit) rose 27.5%, the largest rise since 2006, and the index understated the change because retentions rose too. Zurich did not renew its global cat aggregate that year (Artemis, 2023). When the reinsurer moved up the tower, the loss did not move with it. It moved down, to the cedent, the homeowner and the condition of the ground. [The loss moved down the tower](/guide/the-loss-moved-down-the-tower?from=guide) follows it.

**Model risk.** The Bank of England's 2026 dynamic general insurance stress test went live in May 2026, and California finished its first review of a wildfire catastrophe model for use in rates in July 2025 (California Department of Insurance). A catastrophe model learns from a past that is leaving. [The model learns from a past that is leaving](/guide/the-model-learns-from-a-past-that-is-leaving?from=guide) goes further.

**Capital.** Aon put global reinsurance capital at a record USD 785bn at year-end 2025. Gallagher Re puts the sector's reported return on equity at 19.3% for 2025 (13.5% underlying). Howden Re measured property cat rates down 14.7% risk-adjusted at 1/1/2026. Capital is not the shortage; the modeled loss trend is rising underneath it. Ensurance does nothing for the cycle itself. [Capital is not the shortage](/guide/capital-is-not-the-shortage?from=guide) takes the cycle apart.

**Protection gap.** Swiss Re sigma 1/2025 put 2024 economic losses at USD 318bn against USD 137bn insured: 57% uninsured. Swiss Re Institute puts the premium-equivalent gap at USD 424bn for 2025. State Farm stopped taking new California property applications in May 2023 (United Policyholders). The protection gap is partly [a condition gap](/guide/the-protection-gap-is-a-condition-gap?from=guide).

## not ours

Some of the market's biggest problems have nothing to do with land, and ensurance does nothing for them. Social inflation raised US liability claims 57% over a decade (Swiss Re, 2024), and AM Best re-estimated the US casualty reserve deficiency at about USD 9bn at year-end 2024 (reported 2026). For cyber, Lloyd's required exclusions for state-backed cyber attacks from 31 March 2023. War, political risk and counterparty concentration sit outside it too. No forest changes a jury verdict, a ransomware campaign or a sanctions list.

## what nature-based work cannot touch

Be precise about reach. Work on the ground moves the frequency and severity of mostly local, mostly secondary-peril losses. It does not stop a Category 5 hurricane at landfall or an M7 earthquake. **Peak-peril tail capital is untouched.** The top of the tower still needs reinsurance, retrocession and cat bonds exactly as it does today. Anyone who tells a reinsurer that a marsh replaces its tail cover is overclaiming.

What the field has shown mostly shows up in frequent and mid-size losses, in the studies' own modeling. Narayan and colleagues (2017), using industry catastrophe models, found that salt marshes cut average annual flood losses in Ocean County, New Jersey by 16%. Beck and colleagues (2018) found that without reefs, annual expected flood damages would double. A 2021 study by The Nature Conservancy and WTW put ecological forestry in the Northern Sierra at a modeled 40–60% lower average annual loss. The Swiss Re Institute (2025), reading observed National Flood Insurance Program claims, found claim frequency about half as high in Florida's best-protected coastal-habitat areas, in frequent storms. These are the field's results, named and dated, and mostly modeled. The coastal studies concern storm-driven flooding, much of it from storms the market counts as peak peril; the reductions they report sit in frequent and mid-size events. The wildfire and flood results are the frequency layer reinsurers pushed back to cedents in 2023.

## where ensurance sits

Ensurance funds the condition of that ground now, before the season. The instrument is a **certificate**: a funding record tied to a named place, on a public ledger. The place's condition is read beside the price. A reinsurer's version would be a small, steady share sized from the premium it already writes in a zone, aimed at the ground under that exposure, and could be measured the way a catastrophe model measures: [one run with the work and one without](/guide/how-an-intervention-lowers-the-loss?from=guide).

Three limits, stated plainly. Ensurance does not reinsure anyone, hold tail risk or pay claims ([what ensurance cannot do](/guide/what-ensurance-cannot-do?from=guide)). No reinsurer has booked a loss reduction funded through ensurance; no realized outcome exists yet. And the avoided loss is a bridge, not the value: a floodplain is worth more than its avoided claims, and the claim figure is simply what lets a balance sheet see it. Why moving a loss is not the same as lowering it is the subject of [there is no risk transfer](/guide/there-is-no-risk-transfer?from=guide).

If you buy or write property cat, the services behind this (climate and nature risk assessment, wildfire and flood resilience, MRV and monitoring) are listed at [ensurance for insurers](/solutions/insurers?from=guide&topic=reinsurance). For the basics, read [what is ensurance](/guide/what-is-ensurance?from=guide). Next in this series: [secondary perils are not secondary](/guide/secondary-perils-are-not-secondary?from=guide); the series closes on [what a reinsurer can fund before the season](/guide/what-a-reinsurer-can-fund-before-the-season?from=guide).

## frequently asked questions

### what is reinsurance?

Reinsurance is insurance for insurers: a primary carrier cedes part of the risk it wrote, and part of the premium, to a reinsurer. It is bought by treaty (a whole book) or facultatively (one risk), on a proportional basis (shared premium and losses) or excess of loss (losses above a retention, up to a limit).

### what is the difference between treaty and facultative reinsurance?

Treaty covers a defined class or portfolio automatically under one contract. Facultative is negotiated risk by risk, usually for large or unusual exposures the treaty leaves out.

### what is retrocession?

Retrocession is reinsurance bought by reinsurers. Retrocessionaires include other reinsurers and capital-market investors, often through catastrophe bonds and collateralized covers.

### can nature-based work lower a reinsurer's losses?

Partly, and mostly low in the tower. Field studies show modeled reductions where marshes, reefs and managed forests do their work. Nothing on the ground replaces tail capital, and no reinsurer has booked an ensurance-funded reduction.

### does ensurance reinsure anyone?

No. Ensurance funds the condition of a named place before the season. It does not take risk, hold tail capital or pay claims.

## sources

[Swiss Re sigma 1/2026, natural catastrophes 2025, 2026](https://www.swissre.com/institute/research/sigma-research/sigma-2026-01-natcat-2025-wildfire-storm-risk.html) — 2025 insured losses USD 107bn; record 92% from secondary perils (non-peak group); severe convective storm USD 51bn; Los Angeles wildfires about USD 40bn; 5–7% real trend, about USD 148bn implied for 2026

[Swiss Re sigma 1/2025, natural catastrophes trend, 2025](https://www.swissre.com/institute/research/sigma-research/sigma-2025-01-natural-catastrophes-trend.html) — 2024 insured USD 137bn, economic USD 318bn, 57% uninsured

[Swiss Re Institute, record 142 natural catastrophes in 2023, 2024](https://www.swissre.com/press-release/New-record-of-142-natural-catastrophes-accumulates-to-USD108-billion-insured-losses-in-2023-finds-Swiss-Re-Institute/a2512914-6d3a-492e-a190-aac37feca15b) — Severe convective storm record USD 64bn in 2023

[Risk & Insurance, Swiss Re on 2025 nat-cat losses, 2025](https://riskandinsurance.com/natural-catastrophe-losses-set-to-reach-145-billion-in-2025-with-1-in-10-risk-of-300-billion-peak-year/) — Loss growth mostly exposure; climate change amplifies some perils and regions

[Insurance Journal, Aon 2025 catastrophe losses, 2026](https://www.insurancejournal.com/news/international/2026/01/21/855026.htm) — Sixth straight year of insured losses above USD 100bn (Aon count)

[Verisk, global insured catastrophe losses average USD 171bn, 2026](https://www.verisk.com/company/newsroom/global-insured-catastrophe-losses-now-expected-to-average-$171-billion-annually-verisk-finds/) — Modeled global insured AAL USD 171bn; severe convective storm 40%

[S&P Global, global reinsurance highlights, 2024](https://insight.spglobal.com/story/global-reinsurance-highlights-2024/page/4) — Reinsurers moved up towers, cut aggregates; primary insurers took most SCS losses

[Reinsurance News, Guy Carpenter 1/1 rate-on-line index, 2023](https://www.reinsurancene.ws/global-property-cat-rates-on-line-up-27-5-at-jan-1-renewals-guy-carpenter/) — Global property cat rate-on-line up 27.5%, largest since 2006; understated because retentions rose

[Artemis, Zurich non-renews cat aggregate, 2023](https://www.artemis.bm/news/zurich-opts-to-non-renew-its-cat-aggregate-reinsurance-for-2023/) — Zurich did not renew its global cat aggregate for 2023

[Artemis, Howden Re January 2026 renewals, 2026](https://www.artemis.bm/news/property-cat-reinsurance-down-14-7-retrocession-down-16-5-at-jan-2026-renewals-howden-re) — Property cat down 14.7% risk-adjusted at 1/1/2026

[Reinsurance News, Aon global reinsurer capital, 2026](https://www.reinsurancene.ws/new-highs-for-traditional-alternative-takes-global-reinsurer-capital-to-record-785bn-aon/) — Record USD 785bn global reinsurance capital at year-end 2025

[Reinsurance News, Gallagher Re reinsurer returns, 2026](https://www.reinsurancene.ws/reinsurers-roes-now-comfortably-exceed-the-industrys-cost-of-capital-gallagher-re/) — Reported ROE 19.3%, underlying 13.5%, for 2025

[Insurance Business, Swiss Re protection gap, 2026](https://www.insurancebusinessmag.com/reinsurance/news/breaking-news/global-natural-catastrophe-protection-gap-hits-us424-billion--swiss-re-577930.aspx) — Premium-equivalent protection gap USD 424bn for 2025

[United Policyholders, State Farm California non-renewals, 2024](https://uphelp.org/state-farm-will-not-renew-thousands-of-california-insurance-policies-over-the-next-year/) — State Farm stopped new California property applications in May 2023

[Bank of England, insurance stress testing, 2026](https://www.bankofengland.co.uk/stress-testing/insurers) — Dynamic general insurance stress test live May 2026

[California Department of Insurance, Commissioner's annual report, 2025](https://www.insurance.ca.gov/0400-news/0200-studies-reports/0700-commissioner-report/upload/2024-Annual-Report-of-the-Commissioner.pdf) — Wildfire catastrophe models allowed in rates; first model review finished July 2025

[Artemis, Swiss Re on social inflation, 2024](https://www.artemis.bm/news/swiss-re-says-social-inflation-exceeds-economic-inflation-in-growing-us-liability-claims) — Social inflation raised US liability claims 57% over a decade

[Insurance Journal, AM Best casualty reserves, 2026](https://www.insurancejournal.com/news/national/2026/07/14/877483.htm) — US casualty reserve deficiency about USD 9bn at year-end 2024

[Lloyd's, Market Bulletin Y5381, cyber-attack exclusions, 2022](https://assets.lloyds.com/media/e9a4058c-4c25-48d6-99d3-0c466987e099/Y5381%20Market%20Bulletin%20-%20Cyber-attack%20exclusions.pdf) — State-backed cyber-attack exclusions required from 31 March 2023

[Narayan et al., Scientific Reports 7:9463, 2017](https://doi.org/10.1038/s41598-017-09269-z) — Ocean County salt marshes cut average annual flood losses 16%, modeled with industry cat models

[Beck et al., Nature Communications 9:2186, 2018](https://doi.org/10.1038/s41467-018-04568-z) — Without reefs, annual expected flood damages would double

[TNC and WTW, wildfire resilience insurance, 2021](https://wtwco.com/en-US/Insights/2021/07/wildfire-resilience-insurance-quantifying-the-risk-reduction-of-ecological-forestry-with-insurance) — Northern Sierra ecological forestry, modeled AAL down 40–60%

[Swiss Re Institute, natural habitats and flood protection, 2025](https://www.swissre.com/institute/research/topics-and-risk-dialogues/climate-and-natural-catastrophe-risk/coastal-and-flood-protection-natural-habitats.html) — Florida NFIP claim frequency about half in best-protected coastal-habitat areas, frequent storms

[Swiss Re, Quintana Roo reef parametric cover, 2020](https://www.swissre.com/our-business/public-sector-solutions/case-studies/mexico-windstorm-cover.html) — Parametric reef policy with TNC and the state trust; pays after a storm

[Artemis, Hurricane Lisa triggers Mesoamerican Reef insurance, 2022](https://www.artemis.bm/news/hurricane-lisa-triggers-parametric-mesoamerican-reef-insurance/) — MAR Fund parametric reef policy paid out after Hurricane Lisa

## the series

1. [what reinsurance cannot cede](/guide/what-reinsurance-cannot-cede?from=guide)
2. [secondary perils are not secondary](/guide/secondary-perils-are-not-secondary?from=guide)
3. [the loss moved down the tower](/guide/the-loss-moved-down-the-tower?from=guide)
4. [the model learns from a past that is leaving](/guide/the-model-learns-from-a-past-that-is-leaving?from=guide)
5. [capital is not the shortage](/guide/capital-is-not-the-shortage?from=guide)
6. [what a reinsurer can fund before the season](/guide/what-a-reinsurer-can-fund-before-the-season?from=guide)