News & Insights

Excess of Loss Reinsurance

Preferred Re — Thu, 20 Aug 2026 16:25:22 GMT

The prior two articles have addressed basic reinsurance principals and practices and proportional reinsurance. The antithesis of proportional reinsurance is non-proportional reinsurance, often called “excess of loss” reinsurance to avoid having to use big words like “antithesis.” While some reinsurers complain that their lot in life has always been to deal with an excess of loss, the phrase is supposed to refer to the practice of providing indemnity over and above, i.e., in excess of a specific dollar or percentage amount called the ceding company’s retention (deductible) or the reinsurer’s attachment point. Lest you think that reinsurers are prone to demonstrate a certain degree of affection for their attachments, they can, and do, change them with regularity (and impunity).

Proportional Reinsurance

Preferred Re — Thu, 20 Aug 2026 16:25:08 GMT

As many of you know, pro rata is Latin for “give me your profits in return for a commission that might cover half of your expenses.” At least it sometimes feels that way during reinsurance negotiations. Actually, it refers to dividing premiums, expenses and losses between participants in a predetermined percentage or proportion. While just what actually constitutes premium, expense and loss is often subject to spirited debate, for our purposes we will use basic definitions. In proportional reinsurance, a company cedes (reinsures) a specified portion of a risk less a commission and recovers the same portion of loss from the reinsurer. Two basic forms of proportional reinsurance are called “quota share” and “surplus share.”

Reinsurance Basics

Preferred Re — Thu, 20 Aug 2026 16:24:49 GMT

In many ways, reinsurance is an enigma with a frequently esoteric language, a chameleon-like ability to change structure and, at least according to an occasional regulator, a Medusan capability to turn otherwise viable markets to stone. However, at its most fundamental level, reinsurance is a simple concept.