A proportional reinsurance agreement, also known as “Pro Rata ”, reinsurance, obligates the reinsurer to share a percentage of the losses. The reinsurer receives a prorated share of the insurer’s premiums.
Types of proportional reinsurance include quota share treaties, surplus treaties, and facultative-obligatory treaties.
How do they work?
Primary Insurer:
- Calculates premium including acquisition and administration costs
- Cedes part of the original premium, including the portion attributable to costs to the reinsurer.
Reinisurer:
- Reimburses the costs via commission
- Pays % of losses