Under proportional reinsurance, the reinsurer's share of the risk is defined for each separate policy, while under non-proportional reinsurance the reinsurer's liability is based on the aggregate claims incurred by the ceding office. A continuous contract has no predetermined end date, but generally either party can give 90 days notice to cancel or amend the treaty for new business. The maximum automatic underwriting capacity of the cedant would be $1,000,000 in this example. However, even most reinsurance treaties are relatively short documents considering the number and variety of risks and lines of business that the treaties reinsure and the dollars involved in the transactions. There are again two types of paying a premium: If say 30% of the risk is transferred to the reinsurer then 30% of the premium received by the primary insurance company is directly transferred to the reinsurer. The reinsurer's liability will usually cover the whole lifetime of the original insurance, once it is written. Is your small business eligible for a business owner's policy? Reinsurance can also be purchased on a per policy basis, in which case it is known as facultative reinsurance. Generally speaking, this type of policy reduces the losses sustained by insurance companies by allowing them to recover all, or part, of the amounts they pay to claimants. Insurance coverage is provided for losses occurring in the defined period. Also known as ceding commission, such costs may be paid to the insurance company upfront.4. Non-proportional ReinsuranceIn a non-proportional type of coverage, the reinsurer will only get involved if the insurance company’s losses exceed a specified amount, which is referred to as priority or retention limit. They rely heavily on industry practice. Munich Re is the largest reinsurance company in the world followed by Swiss Re and Hannover. Pools are treaties, either quota share or surplus, in the sense that under these arrangements various member countries or member companies join their hands together beforehand for sharing each other’s premium as well as a claim. Reinsurance is one of the major capital and risk management tools available to the primary insurance industry. So if the insurance company issues a policy for $100,000, they would keep all of the premiums and losses from that policy. An agreement is in place with the insurance company and the direct writer. Reinsurance makes insurance sector more stable and attractive. Pools Treaty Reinsurance. Reinsurance is basically a form of coverage intended for insurance providers. The risks are spread, with the reinsurer or reinsurers bearing some of the loss incurred by the insurance company. A Reinsurance treaty under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. However the question arises of when either party can choose to cease the reinsurance in respect of future new business. These contracts usually contain event limits to prevent their misuse as a substitute for Catastrophe XLs. Reinsurers provide protection to the insurance industry for a diverse range of risks and also gives them capital relief.