Automatic Non-proportional Reinsurance
What Does Automatic Non-proportional Reinsurance Mean?
Automatic non-proportional reinsurance is reinsurance that kicks in automatically once an insurance company suffers a loss in excess of a certain pre-specified amount. Once this happens then the reinsurance company is obligated to cover the loss to a maximum limit. Beyond the maximum amount, the reinsurance company has no obligation to cover the loss.
Insuranceopedia Explains Automatic Non-proportional Reinsurance
Automatic non-proportional reinsurance is "non-proportional" because the reinsurance company has to cover losses that are not proportional to the principle that is paid by the policyholder. Instead, it must cover any excess losses that occur up to the maximum limit. Insurance companies commonly purchase this type automatic non-proportional reinsurance so that they know that if they experience excess losses, they will still be able to handle the situation as opposed to having a financial crisis.