What is reinsurance?
Reinsurance is a risk transfer mechanism where one insurance company purchase cover from another insurance company (the reinsurer) for a risk that the first insurance company is insuring. In other words, reinsurance is the insurance of an insurance company.

Proportioanl reinsurance
Proportional reinsurance is where cover is based on a stated percent share of each policy that an insurer produces, that is, premiums, commissions and claims are paid on a pro-rata basis. Types of proportional reinsurance are quota share, surplus and some forms of facultative reinsurance.

Indemnity
Indemnity means the financial restoration to a level just before the accident or injury.

Non-proportional reinsurance
Non-proportional reinsurance means there is no direct sharing of risk. The reinsurer is obligated only after the cedent’s loss payments exceed a predetermined amount, called the priority, after which the reinsurer will pay up to a stated limit of liability. The common forms of non-proportional reinsurance are excess of loss treaty, catastrophe cover, aggregate excess, stop loss cover and some forms of facultative reinsurance.

Treaty reinsurance
Treaty reinsurance is an automatic reinsurance agreement between the ceding insurer and the reinsurer which requires the reinsurer to underwrite or assume part or all of a ceding company[+]s book of business for one or more specific classes of business. This means that the reinsurer is automatically bound to reinsure any business the company writes within the specified classes.

Facultative reinsurance
Facultative reinsurance is the reinsurance of part or all of a single policy subject to a separate, optional negotiation of terms and conditions. This form of reinsurance is used to reduce the ceding company[+]s exposure to an individual risk and to help the primary insurer fill in gaps in a treaty reinsurance program.