Automatic Proportional Reinsurance is a type of reinsurance agreement in which the reinsurer assumes a predetermined proportion of the ceding insurer’s risks and premiums for a specific line of business or portfolio. Under this arrangement, the reinsurer shares both the losses and profits with the ceding insurer in proportion to the agreed-upon percentage. The purpose of Automatic Proportional Reinsurance is to provide the ceding insurer with risk-sharing and capital relief, while allowing the reinsurer to diversify its portfolio and generate additional premium income. This type of reinsurance is typically structured on a treaty basis and is subject to predefined terms and conditions, including the proportion of risk assumed, premium allocation, and claims settlement process.
Automatic proportional reinsurance is a type of reinsurance agreement where the reinsurer agrees to assume a fixed percentage of the ceding insurer’s risks and premiums for a specific line of business. This type of reinsurance is typically used to spread the risk of large losses across multiple insurers.
Under an automatic proportional reinsurance agreement, the reinsurer agrees to accept a predetermined percentage of the ceding insurer’s risks and premiums for each policy issued within the agreed line of business. This percentage is usually based on the ceding insurer’s historical loss experience and the reinsurer’s risk appetite.
The ceding insurer retains the remaining percentage of the risks and premiums, and is responsible for handling claims and policy administration. The reinsurer, on the other hand, assumes a proportional share of the risks and premiums, and in return, receives a proportional share of the premiums collected by the ceding insurer.
Automatic proportional reinsurance provides several benefits to both the ceding insurer and the reinsurer. For the ceding insurer, it helps to reduce the volatility of its underwriting results by spreading the risk of large losses. It also allows the ceding insurer to free up capital that would otherwise be tied up in reserves for potential losses.
For the reinsurer, automatic proportional reinsurance provides a diversified portfolio of risks, which helps to spread the risk of large losses across multiple insurers. It also allows the reinsurer to earn a steady stream of premiums without the need to underwrite policies or handle claims.
In summary, automatic proportional reinsurance is a type of reinsurance agreement where the reinsurer assumes a fixed percentage of the ceding insurer’s risks and premiums for a specific line of business. This arrangement helps to spread the risk of large losses and provides benefits to both the ceding insurer and the reinsurer.
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This glossary post was last updated: 29th March 2024.
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