Automatic Proportional Reinsurance

Definition - What does Automatic Proportional Reinsurance mean?

Automatic proportional reinsurance is reinsurance that is based on the primary insurer and the reinsurer splitting the premiums, the expenses, and the losses according to a certain predetermined proportion. In this way, automatic proportional reinsurance serves as a backup risk management option for insurance companies. Insurance companies can purchase this type of insurance if they feel they have assumed too much risk.

Insuranceopedia explains Automatic Proportional Reinsurance

Automatic proportional reinsurance is an alternative to non-proportional reinsurance. With non-proportional reinsurance, the primary insurer and the reinsurance company do not split risk and gains based on a predetermined proportion. Instead, the reinsurance company simply covers losses for the primary insurer after a certain amount have been accumulated, and up to a certain limit. Insurance companies can chose between these two different types of reinsurance. Often, the specific needs of an insurance company can dictate which type of reinsurance will work better.

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