Automatic Non-proportional Reinsurance

What Does Automatic Non-proportional Reinsurance Mean?

Automatic non-proportional reinsurance is a type of reinsurance that automatically activates when an insurance company experiences a loss exceeding a pre-specified threshold. Once the threshold is surpassed, the reinsurance company is obligated to cover the loss up to a maximum limit. Any loss beyond this maximum amount is not covered by the reinsurance company.

Insuranceopedia Explains Automatic Non-proportional Reinsurance

Automatic non-proportional reinsurance is termed “non-proportional” because the reinsurance company covers losses that are not directly proportional to the premiums paid by the policyholder. Instead, it covers any excess losses that exceed a specified amount, up to a maximum limit. Insurance companies typically purchase this type of reinsurance to ensure that, in the event of excess losses, they can manage the situation without facing a financial crisis.