I've been learning about proportional and nonproportional reinsurance but I'm still unclear about the key differences can you explain these terms and provide some examples of course let's start with proportional reinsurance in this type the insurer and the reinsurer share both premiums and losses in an agreed ratio for instance in a 50/50 quota share agreement the reinsurer covers 50% of the risk receives 50% of the premium and pays 50% of any claims so both the risks and rewards are shared equally based on that ratio exactly proportional reinsurance is all about sharing another example is Surplus share reinsurance in this case the insurer keeps risks up to a certain limit and any excess is passed to the reinsurer for instance if an insurer can retain $1 million in risk and a policy is for $3 million the remaining $2 million is transferred to the reinsurer that's helpful so proportional reinsurance splits both premiums and claims in a fixed way how does nonproportional reinsurance differ nonproportional reinsurance Works differently here the reinsurer only steps in after the insurer's losses exceed a certain amount called the retention limit this is commonly referred referred to as excess of loss reinsurance could you provide an example sure let's say an insurer has a $5 million retention limit if a claim is $7 million the insurer pays the first $5 million and the reinsurer covers the remaining $2 million so the reinsurer is only responsible for losses above the retention limit so in nonproportional reinsurance the reinsurer step as a backup after a certain threshold that's right nonproportional reinsurance is typically used for catastrophic events or large unpredictable claims the insurer handles regular smaller claims while the reinsurer takes on the larger less frequent ones it sounds like proportional reinsurance is good for managing regular risks while nonproportional is more about protecting against rare large losses exactly proportional reinsurance Insurance suits portfolios where risks are predictable and need to be shared while nonproportional reinsurance limits exposure to significant unexpected losses that could threaten Financial stability do insurers typically use both forms yes they often do proportional reinsurance helps with consistent risks while non-proportional reinsurance provides protection against large scale events together they balance the insurer's portfolio effectively that's really clear now proportional reinsurance shares premiums and claims from the start while nonproportional reinsurance covers losses only after they exceed a set threshold exactly both types are crucial and understanding when to use each helps insurers manage risks at all levels as you advance in your career you'll see how both fit into broader riskmanagement strategies