Reinsurance that shares premiums and losses by agreed percentages.
Proportional reinsurance is reinsurance in which the insurer and reinsurer share premium and covered losses according to agreed percentages from the start of the risk.
The key feature is that the sharing begins immediately. The reinsurer is not waiting for a high attachment point to be exceeded. Instead, premium and qualifying losses are split under the treaty from first dollar according to the agreed allocation.
This term matters because it explains one of the two major logics of treaty reinsurance. In proportional arrangements, the insurer uses a reinsurer as an ongoing capacity partner across a book of business rather than only as severe-loss protection above a high threshold.
In Canadian practice, proportional reinsurance can support growth, line size, capital management, and volatility control for portfolios where the insurer wants shared participation from the beginning.
The ceding company keeps part of the business net and cedes the rest to the reinsurer according to treaty rules. Common forms include quota-share and surplus-style structures. That means the reinsurer shares both premium income and covered losses, rather than stepping in only for severe layers as in excess of loss reinsurance.
This structure is especially useful where the insurer wants partner capacity across an entire class of business rather than only catastrophe-style support above a high retention.
| Structure | Main logic |
|---|---|
| Proportional reinsurance | Premium and covered losses are shared from the start according to agreed percentages. |
| Excess of loss reinsurance | The reinsurer responds only after losses move above the insurer’s retained layer. |
An insurer enters a quota-share treaty under which it keeps 60 percent of a defined class of property business and cedes 40 percent to the reinsurer. Premium and covered losses are then divided on that basis for qualifying policies.
That structure can help an insurer write more business, stabilize results, or manage capital pressure without waiting for a catastrophic attachment point to be reached first.
Proportional reinsurance is not the same as facultative reinsurance. Facultative placement is arranged risk by risk. Proportional reinsurance is usually built into a standing treaty structure.
It is also different from excess-of-loss protection. In proportional reinsurance, the sharing begins from the first covered dollar rather than after a large retained layer has been exhausted.
Another common mistake is assuming proportional reinsurance means the insurer has no meaningful exposure left. The ceding company still keeps a net share, still manages claims and underwriting, and still carries operational and reserve responsibilities.
Readers also sometimes assume every proportional treaty is just a simple percentage split. In practice, commissions, cession limits, exclusions, and eligibility rules can materially affect the economics.
Commission arrangements, treaty exclusions, retention rules, and eligible classes can vary materially. The broad label describes the sharing logic, not the full economics of a specific treaty.