Reinsurance policies are either proportional, or non-proportional. This refers to how the insurance company pays their premiums, and which losses the reinsurer covers.
Under proportional reinsurance, a reinsurance company takes on a percentage of the risk for each policy the insurer sells. They also receive a percentage of the premiums paid for that policy.
Under a non-proportional agreement, the reinsurer will only pay out if losses top a certain number in a given time period or for a specific event. This is the type of reinsurance that helps insurance providers cover costs following a major catastrophe. It’s also known as a reinsurance treaty.