Reinsurance is generally available on a “pro rata” or proportional basis, or on an “excess of loss” basis. A pro rata reinsurance contract obligates the reinsurer to indemnify the ceding insurer for a percentage of any losses from the original risk in return for a corresponding portion of the premium for the original risk. Pro rata reinsurance arrangements generally require the reinsurer to pay a proportion of any losses that occur with no retention (a portion of the risk that the ceding insurer “retains” for its own account). Excess of loss reinsurance indemnifies the ceding insurer for all or a stated portion of loss in excess of a stated retention.
Robert N. Hermes
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