Guides
How Reinsurance Works
Reinsurance lets insurers manage capital and volatility by transferring part of their risk. It comes in two contract structures (treaty and facultative) and two economic forms (proportional and non-proportional). Managing it well means tracking every cession, premium and recovery accurately.
Definition. Reinsurance is insurance for insurers: a reinsurer accepts part of an insurer's risk in exchange for a share of the premium, so the insurer can write larger or more volatile risks safely.
Treaty vs facultative
Treaty reinsurance covers a whole portfolio of risks under one agreement, automatically. Facultative reinsurance is negotiated for a single risk, one at a time — typically large or unusual exposures that fall outside the treaty.
Proportional vs non-proportional
Under proportional reinsurance the reinsurer takes a fixed share of premiums and losses (for example quota share). Under non-proportional reinsurance (excess of loss) the reinsurer only pays when a loss exceeds a defined retention, protecting the insurer against large or catastrophic events.
What reinsurance software tracks
- Treaty and facultative arrangements and their terms
- Cessions per policy and per risk
- Ceded premium and reinsurance commission
- Claims recoveries from reinsurers
- Net retained exposure for capital management
Frequently asked questions
How does reinsurance work?
What is the difference between treaty and facultative reinsurance?
Related
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Last reviewed: 2026-07-29