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🔺 '''Non-proportional treaty''' is a type of [[Definition:Reinsurance | reinsurance]] arrangement in which the [[Definition:Reinsurer | reinsurer]] responds only when losses exceed a predetermined threshold, known as the [[Definition:Attachment point | attachment point]] or [[Definition:Retention | retention]], rather than sharing in every loss from the first dollar as in [[Definition:Proportional reinsurance | proportional reinsurance]]. The most common forms are [[Definition:Excess of loss reinsurance | excess of loss]] treaties — structured on a per-risk, per-occurrence, or [[Definition:Aggregate excess of loss | aggregate]] basis — and [[Definition:Stop loss reinsurance | stop loss]] treaties that cap the [[Definition:Cedant | cedant's]] overall loss ratio for a defined period. Non-proportional treaties are a cornerstone of [[Definition:Reinsurance program | reinsurance program]] design worldwide, from [[Definition:Lloyd's | Lloyd's]] syndicates in London to large domestic carriers in Japan, Germany, and the United States.

⚙️ Structurally, a non-proportional treaty defines a specific layer of coverage — for example, $10 million in excess of a $5 million retention — and the reinsurer pays only the portion of a loss that falls within that layer. The [[Definition:Cedant | ceding company]] retains all losses below the attachment point and, if the layer has a finite [[Definition:Limit | limit]], also bears any losses above the layer's ceiling unless a higher layer is in place. Pricing is expressed as a [[Definition:Reinsurance premium | reinsurance premium]] rather than as a share of the original premium, and it reflects modeled [[Definition:Expected loss | expected losses]], historical [[Definition:Loss experience | loss experience]], and market conditions. [[Definition:Reinstatement | Reinstatement]] provisions — which specify whether and at what cost the layer's limit can be restored after a loss — are a critical negotiating point, particularly for [[Definition:Catastrophe excess of loss | catastrophe excess of loss]] covers where a single event can exhaust the full limit.

📐 From a strategic perspective, non-proportional treaties allow insurers to precisely calibrate how much [[Definition:Volatility | volatility]] they are willing to accept, making them essential tools for [[Definition:Capital management | capital management]] and [[Definition:Solvency | solvency]] optimization. Under [[Definition:Solvency II | Solvency II]], the risk-mitigating effect of non-proportional reinsurance directly reduces the [[Definition:Solvency capital requirement (SCR) | SCR]], and similar recognition exists under the [[Definition:Risk-based capital (RBC) | RBC]] framework in the U.S. and [[Definition:C-ROSS | C-ROSS]] in China. Because the reinsurer's exposure is confined to a specific loss band, non-proportional treaties can concentrate [[Definition:Counterparty credit risk | credit risk]] — if the reinsurer defaults on a large loss, the cedant's retained exposure spikes dramatically. This concentration makes [[Definition:Reinsurer security | reinsurer security]] evaluation and [[Definition:Collateral | collateralization]] provisions particularly important in non-proportional placements.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Proportional reinsurance]]
* [[Definition:Attachment point]]
* [[Definition:Reinstatement]]
* [[Definition:Catastrophe excess of loss]]
* [[Definition:Reinsurance program]]
{{Div col end}}

Definition:Non-proportional treaty - Revision history

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