Non-Proportional Reinsurance (Nichtproportionale Rückversicherung)

Concept

Non-proportional reinsurance is one of the two fundamental forms of reinsurance, in which the split of a loss between cedent and reinsurer is not based on a fixed, pre-agreed percentage but depends exclusively on the amount of the loss actually incurred. The reinsurer is called upon only once a loss or an accumulation of losses exceeds an agreed retention (the cedent’s self-retained amount), and is then liable up to the amount of the agreed capacity.

Main Forms

The main forms of non-proportional reinsurance are per-risk excess of loss (working excess of loss, relating to a single loss), catastrophe excess of loss (relating to the accumulation of multiple losses from a single event), and aggregate excess of loss / stop loss (relating to the entire loss experience of a financial year).

Distinction from Proportional Reinsurance

Unlike proportional reinsurance, where premiums and losses are split between cedent and reinsurer in a fixed ratio agreed from the outset, non-proportional reinsurance allows the cedent to obtain targeted protection against large losses and accumulation events, without the reinsurer participating in the entire, including small-scale, loss experience of the portfolio; this allows reinsurance capacity to be efficiently concentrated on the risk peaks that are economically most significant for the cedent.