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🛡️ '''Non-proportionate reinsurance''' is a form of [[Definition:Reinsurance|reinsurance]] in which the reinsurer's obligation to pay is triggered not by a fixed share of every risk or [[Definition:Premium|premium]], but by the actual amount of [[Definition:Losses|loss]] exceeding a predetermined threshold, known as the [[Definition:Retention|retention]] or attachment point. Unlike [[Definition:Proportional reinsurance|proportional reinsurance]] — where the ceding insurer and reinsurer share premiums and losses according to a pre-agreed percentage — non-proportionate structures give the primary insurer full exposure to losses up to the retention and transfer only the excess or catastrophic layers to the reinsurer. This architecture makes non-proportionate reinsurance the primary tool insurers use to protect their balance sheets against severity risk, [[Definition:Catastrophe loss|catastrophe accumulations]], and individual large-loss events.

⚙️ The two principal forms are [[Definition:Excess of loss reinsurance|excess of loss reinsurance]] and [[Definition:Stop-loss reinsurance|stop-loss (or aggregate excess)]] reinsurance. Excess of loss treaties can operate on a per-risk, per-occurrence, or aggregate basis: a per-occurrence [[Definition:Catastrophe excess of loss|catastrophe excess of loss]] treaty, for example, might cover losses from a single hurricane event exceeding $100 million up to a limit of $500 million. Stop-loss treaties respond when the ceding company's total loss ratio for a defined period breaches a specified percentage, providing a backstop against deterioration across the entire portfolio. Pricing these structures depends heavily on [[Definition:Catastrophe modeling|catastrophe models]], historical loss experience, and the perceived risk profile of the ceding company's book — factors assessed in detailed negotiations between cedants, [[Definition:Reinsurance broker|reinsurance brokers]], and reinsurers, often during the major renewal seasons in January, April, June, and July. Markets such as [[Definition:Lloyd's of London|Lloyd's]], Bermuda, Singapore, and continental European reinsurance hubs all actively trade non-proportionate capacity, though the terms, customs, and regulatory treatments vary across jurisdictions.

📈 Non-proportionate reinsurance plays a structural role in enabling the insurance industry to absorb risks that would otherwise be uninsurable at the individual company level. Without the ability to cap their maximum exposure to a single event or an accumulation of losses, primary insurers would need to hold dramatically more [[Definition:Regulatory capital|capital]] or restrict the coverage they offer to policyholders. After major catastrophe events — such as Hurricane Andrew in 1992, the Tōhoku earthquake in 2011, or the severe [[Definition:Natural catastrophe|natural catastrophe]] years of 2017 and 2023 — the pricing and availability of non-proportionate reinsurance often shifts sharply, triggering broader market [[Definition:Underwriting cycle|hardening]] that cascades into primary insurance rates. The growth of [[Definition:Insurance-linked securities (ILS)|insurance-linked securities]], including [[Definition:Catastrophe bond|catastrophe bonds]], has expanded the capital base available for non-proportionate risk transfer, bringing pension funds, hedge funds, and sovereign wealth funds into what was once the exclusive domain of traditional reinsurers. Understanding non-proportionate structures is essential for anyone working in [[Definition:Enterprise risk management|enterprise risk management]], [[Definition:Capital management|capital management]], or the strategic allocation of risk within an insurance group.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Proportional reinsurance]]
* [[Definition:Catastrophe excess of loss]]
* [[Definition:Retention]]
* [[Definition:Catastrophe bond]]
* [[Definition:Reinsurance broker]]
{{Div col end}}

Definition:Non-proportionate reinsurance - Revision history

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