What is non proportional reinsurance?

Non-proportional reinsurance is a type of reinsurance arrangement where the reinsurer agrees to cover losses that exceed a specified threshold, rather than sharing a proportional amount of all premiums and losses. This means that the primary insurer retains a certain amount of risk up to the attachment point, while the reinsurer is responsible for losses above that limit, typically up to a defined cap. This arrangement allows insurers to manage large, unexpected losses without affecting their overall premium income significantly. Common forms of non-proportional reinsurance include excess of loss and stop-loss coverage.