What does "non-proportional reinsurance" refer to?

Non-proportional reinsurance refers to an arrangement where the reinsurer is responsible for covering losses that exceed a predetermined threshold, known as the attachment point. In this setup, once losses surpass this point, the reinsurer starts to take responsibility for the excess, often up to a specified limit. This type of reinsurance is advantageous for primary insurers as it provides protection against large, catastrophic losses without requiring the reinsurer to take on a proportional share of all premiums and losses incurred.

By contrast, systems like matching claims payouts with premium income are indicative of proportional arrangements where losses are shared more directly in relation to the premiums paid. Similarly, in a scenario where the reinsurer pays claims only up to certain limits, it would imply a different approach, often more characteristic of a quota share or similar structure rather than a strictly non-proportional method. Therefore, the focus on covering claims above a specific threshold distinctly characterizes non-proportional reinsurance.