Which method of re-insurance involves sharing losses proportionately?

Which method of re-insurance involves sharing losses proportionately?

• A. Facultative
• B. Treaty
• C. Proportional
• D. Non-Proportional

Answer: (C)

In reinsurance, the method that involves sharing losses proportionately is known as proportional reinsurance. This type of arrangement means that both the reinsurer and the ceding insurer share the premiums and losses in a specified ratio. Essentially, the reinsurer agrees to take on a pre-determined percentage of the risk, leading to an equitable distribution of losses based on the agreed-upon ratio. This proportional method contrasts with non-proportional reinsurance, where the reinsurer only pays for losses that exceed a specified amount, rather than sharing losses on a percentage basis. Facultative reinsurance refers to an arrangement made for individual risks rather than a blanket agreement on a portfolio, while treaty reinsurance involves contracts that cover a portfolio of risks on a continuous basis. Proportional reinsurance is specifically characterized by the shared responsibility for both premiums and losses, making it unique among reinsurance methods.

In reinsurance, the method that involves sharing losses proportionately is known as proportional reinsurance. This type of arrangement means that both the reinsurer and the ceding insurer share the premiums and losses in a specified ratio. Essentially, the reinsurer agrees to take on a pre-determined percentage of the risk, leading to an equitable distribution of losses based on the agreed-upon ratio.

This proportional method contrasts with non-proportional reinsurance, where the reinsurer only pays for losses that exceed a specified amount, rather than sharing losses on a percentage basis. Facultative reinsurance refers to an arrangement made for individual risks rather than a blanket agreement on a portfolio, while treaty reinsurance involves contracts that cover a portfolio of risks on a continuous basis. Proportional reinsurance is specifically characterized by the shared responsibility for both premiums and losses, making it unique among reinsurance methods.