Automatic Proportional Reinsurance
What Does Automatic Proportional Reinsurance Mean?
Automatic proportional reinsurance is a type of reinsurance where the primary insurer and the reinsurer share premiums, expenses, and losses according to a predetermined proportion. This arrangement serves as a backup risk management tool for insurance companies. They can purchase this type of reinsurance when they believe they have assumed too much risk.
Insuranceopedia Explains Automatic Proportional Reinsurance
Automatic proportional reinsurance is an alternative to non-proportional reinsurance. In non-proportional reinsurance, the primary insurer and the reinsurer do not share risk and gains based on a predetermined proportion. Instead, the reinsurer covers losses for the primary insurer after a certain threshold is reached, up to a specified limit. Insurance companies can choose between these two types of reinsurance, with the specific needs of the company often determining which type will be more suitable.
