What does "non-proportional" re-insurance mean?

What does "non-proportional" re-insurance mean?

• A. Insurer retains all risk beyond a certain amount
• B. Re-insurer pays a fixed amount regardless of total loss
• C. Larger share of losses based on a defined ratio
• D. Claims are settled based on loss experience

Answer: (B)

Non-proportional reinsurance refers to a type of reinsurance arrangement where the reinsurer covers a specified amount of loss above a certain threshold, rather than sharing losses in proportion to the amounts of risk retained by the insurer. In this context, the correct interpretation is that the reinsurer pays a fixed amount for losses that exceed that predetermined threshold. This fixed payment provides a layer of financial protection for the primary insurer, as it limits their exposure to catastrophic losses while also allowing them to retain smaller claims. Non-proportional reinsurance is especially useful for insurers looking to protect themselves against unexpected large losses, as they can budget their risk management strategies with more certainty regarding their retained risks. Other options describe concepts that are either not aligned with the non-proportional nature or relate to different types of reinsurance. For instance, the notion of retaining all risk beyond a certain amount pertains more to retention levels rather than a reimbursement model. Similarly, a larger share of losses based on a defined ratio would refer to proportional reinsurance, where losses are shared according to a set percentage rather than a fixed payment. Claims settled based on loss experience does not specifically define non-proportional reinsurance and is more reflective of general claims management practices.

Non-proportional reinsurance refers to a type of reinsurance arrangement where the reinsurer covers a specified amount of loss above a certain threshold, rather than sharing losses in proportion to the amounts of risk retained by the insurer. In this context, the correct interpretation is that the reinsurer pays a fixed amount for losses that exceed that predetermined threshold.

This fixed payment provides a layer of financial protection for the primary insurer, as it limits their exposure to catastrophic losses while also allowing them to retain smaller claims. Non-proportional reinsurance is especially useful for insurers looking to protect themselves against unexpected large losses, as they can budget their risk management strategies with more certainty regarding their retained risks.

Other options describe concepts that are either not aligned with the non-proportional nature or relate to different types of reinsurance. For instance, the notion of retaining all risk beyond a certain amount pertains more to retention levels rather than a reimbursement model. Similarly, a larger share of losses based on a defined ratio would refer to proportional reinsurance, where losses are shared according to a set percentage rather than a fixed payment. Claims settled based on loss experience does not specifically define non-proportional reinsurance and is more reflective of general claims management practices.