Reinsurance structures

Ceding commission

A ceding commission is a payment a reinsurer makes to the ceding insurer under a proportional treaty, reimbursing the insurer for the costs of acquiring and servicing the business.

Excess of loss reinsurance

Excess of loss reinsurance is a non-proportional arrangement in which the reinsurer pays losses only above a set retention, known as the attachment point, up to an agreed limit.

Facultative reinsurance

Facultative reinsurance is coverage purchased for a single risk or a specific policy, negotiated individually, where the reinsurer can accept or decline each risk it is offered.

Proportional reinsurance

Proportional reinsurance is a pro rata arrangement in which the ceding insurer and the reinsurer share premiums and losses in a set proportion. It includes quota share and surplus share treaties.

Quota share reinsurance

Quota share reinsurance is a proportional arrangement in which the reinsurer takes a fixed percentage of the premiums and pays that same percentage of the losses on the covered policies.

Retention limit

A retention limit is the amount of loss a ceding insurer keeps for its own account before its reinsurance responds. It is also called the retention or net line.

Treaty reinsurance

Treaty reinsurance is an arrangement in which a reinsurer agrees to cover a defined class or portfolio of an insurer's policies under a single contract, rather than reviewing each risk one at a time.