The two most common forms for reinsurance are proportional and non-proportional, also called excess. Proportional relates to the sharing of premium and losses in the same percentage while non-proportional involves a negotiated premium with reinsurance coverage above a specific amount called a retention. Reinsurance pricing and contract forms are not, in general, regulated. Can be used to transfer risk to RRGs and captives from fronted programs. Is an excellent vehicle for pooling.
Reinsurance can provide financing for the primary company s growth.
Excess reinsurance can be difficult to price. Reinsurers do not normally provide support for direct claims handling. May require coordination of claims handling activities. Unauthorized reinsurance may require security provisions. For a proportional reinsurance treaty, the ceding company receives a ceding commission from the reinsurer as reimbursement for the ceding company s acquisition costs.