# Products and contracts
> The instruments that transfer reinsurance risk: proportional vs. non-proportional, the main contract structures, and the loss perspectives along the chain.
Source: https://reinsurance.dev/foundations/products-and-contracts/
Reinsurance risk is transferred through **[contracts](https://reinsurance.dev/glossary/#contract)**. A contract defines precisely which losses the reinsurer covers, under what conditions, and up to what amount. Understanding contract structures at a conceptual level is a prerequisite for the mathematical formalisation in [Analytics Toolkit](https://reinsurance.dev/toolkit/) and the contract modelling in [Financial Modelling](https://reinsurance.dev/financial-modelling/).
## The two families of reinsurance
Reinsurance contracts divide conventionally into two families, proportional and excess of loss, and the two are combined in practice.[^two-families] The split is by how losses are shared between the cedent and the reinsurer. The two families are this section's simplification, not an exhaustive taxonomy. The [quota share](https://reinsurance.dev/financial-modelling/contracts/quota-share/) page later shows a proportional treaty carrying an event limit borrowed from excess of loss, and hybrids like it recombine the same two mechanisms.
### Proportional reinsurance
In **[proportional](https://reinsurance.dev/glossary/#proportional-reinsurance)** reinsurance, the reinsurer takes a fixed percentage of every loss (and receives the same percentage of premium). The sharing is simple and predictable.
The simplest proportional structure is the **[quota share](https://reinsurance.dev/glossary/#quota-share)**: the reinsurer agrees to take, say, 25% of all losses in a defined portfolio, in exchange for 25% of the premium.[^quota-share] The other proportional form is the **[surplus share](https://reinsurance.dev/glossary/#surplus-share)**, where the ceded percentage varies policy by policy with the sum insured against the cedent's retention line.[^surplus] It needs per-policy sums insured, which the catastrophe model's loss output does not carry, so this site's proportional examples are quota shares.
*[Interactive figure: Quota share chart. See the web page: https://reinsurance.dev/foundations/products-and-contracts/]*
**Key properties of proportional contracts:**
- The reinsurer participates in every loss, large or small
- The sharing ratio is fixed (or formula-based in some variants)
- Premium and loss move together: if the cedent collects more premium, the reinsurer gets more too
- Simpler to administer, but less capital-efficient for the cedent per unit of premium ceded; the reason, in this site's assessment, is that the reinsurer is paid for small losses the cedent could carry itself[^capital-efficiency]
- The reinsurer must trust (or independently verify) that the cedent is pricing the underlying risk correctly, since the reinsurer inherits the cedent's risk selection and pricing quality
:::note[Caldera Re]
In [Caldera Re's](https://reinsurance.dev/caldera-re/) portfolio, **Contract 5** (Baltica EU Windstorm Quota Share) is proportional: Baltica cedes 25% of its European windstorm losses to the treaty. Caldera Re holds a 30% [participation](https://reinsurance.dev/foundations/products-and-contracts/#participation) in that treaty, so it assumes 30% of 25%: 7.5% of Baltica's European windstorm losses.
:::
### Non-proportional reinsurance (excess of loss)
In **[non-proportional](https://reinsurance.dev/glossary/#non-proportional-reinsurance)** (or **[excess of loss](https://reinsurance.dev/glossary/#excess-of-loss)**) reinsurance, the reinsurer only pays when losses exceed a specified threshold. The reinsurer is selling protection against the tail of the loss distribution: it collects premium in exchange for absorbing large losses, while small losses remain entirely with the cedent.
In property catastrophe, the most common form of per-occurrence cover is the **[catastrophe excess of loss (CatXoL)](https://reinsurance.dev/glossary/#catxol-catastrophe-excess-of-loss)**: the reinsurer covers losses between an **[attachment point](https://reinsurance.dev/glossary/#attachment-point)** and a **[limit](https://reinsurance.dev/glossary/#limit)** for a single catastrophe occurrence.[^catxol-common] Excess of loss is also written **per risk**: the attachment and limit apply to each individual policy or location loss rather than to a catastrophe occurrence. [Per-risk excess of loss](https://reinsurance.dev/glossary/#per-risk-excess-of-loss) is priced from exposure and loss experience rather than from catastrophe-model output,[^per-risk-pricing] and is out of scope for this site.
*[Interactive figure: Cat XoL layer chart. See the web page: https://reinsurance.dev/foundations/products-and-contracts/]*
A CatXoL layer written "30M xs 10M" (a \$30M limit excess of a \$10M attachment) splits every occurrence loss three ways:
- Losses below the **attachment point** (\$10M) are entirely retained by the cedent
- Losses within the **contract layer** (\$10M to \$40M) are ceded to the reinsurer
- Losses above the **[exhaustion point](https://reinsurance.dev/glossary/#exhaustion-point)** (\$40M) are not covered: they remain with the cedent
**Key properties of non-proportional contracts:**
- The reinsurer only pays for large losses that exceed the attachment point
- The maximum payout is capped at the limit
- Premium is typically a fraction of the limit: because the attachment excludes frequent, smaller losses, the expected loss within the layer is much lower than the total expected loss, and the premium reflects this
- More capital-efficient for the cedent: the premium buys protection only where the cedent cannot carry the loss itself[^capital-efficiency]
- More complex to price: the reinsurer must model the probability and severity of losses in the layer
:::note[Caldera Re]
Three of [Caldera Re's](https://reinsurance.dev/caldera-re/) six contracts are CatXoL: **Contract 1** (SunCoast, Florida Hurricane), **Contract 4** (Pacific Mutual, California Earthquake), and **Contract 6** (Atlas Cat Fund, Japan Earthquake).
:::
:::caution[Watch Out]
Do not conflate "retention" or "attachment point" with "deductible." They are related but not the same. A deductible is the amount the insured absorbs before coverage applies. An attachment point is the loss level at which the reinsurer starts paying the insurer. The concepts are analogous but exist at different levels of the risk transfer chain.
:::
Where an excess-of-loss layer starts paying, and how much it can pay, are [its attachment and its limit](https://reinsurance.dev/foundations/products-and-contracts/#attachment-and-limit).
## Key contract concepts
Several concepts recur across contract types, and two of them, attachment and limit, define what an excess-of-loss contract is.
### Attachment and limit
The **[attachment point](https://reinsurance.dev/glossary/#attachment-point)** is the loss threshold above which the contract starts paying. The **[limit](https://reinsurance.dev/glossary/#limit)** is the maximum the contract will pay. Together they define a band of risk being transferred. This band is called a **[layer](https://reinsurance.dev/glossary/#layer)**.
| Term | Definition |
| --- | --- |
| Attachment point | Loss level where the contract begins to respond |
| Limit | Maximum payment under the contract |
| Exhaustion point | Attachment + limit: the loss level at which the contract is fully consumed |
A contract described as "\$30M xs \$10M" means: limit of \$30M, excess of (attaching at) \$10M. The reinsurer pays losses between \$10M and \$40M.
:::note[Terminology: contract, treaty, layer, program]
Contract, treaty, layer, and program are closely related and sometimes used loosely.
- **[Contract](https://reinsurance.dev/glossary/#contract)** is the generic term for any reinsurance agreement, the legal document formalising obligations between parties. This site uses "contract" throughout as the default term.
- **[Treaty](https://reinsurance.dev/glossary/#treaty)** is a contract that covers a defined book of business over a set period (usually 12 months, renewing annually), as opposed to **[facultative](https://reinsurance.dev/glossary/#facultative)** reinsurance which covers individual risks case by case. Industry practitioners may say "treaty" where this site says "contract."
- **[Layer](https://reinsurance.dev/glossary/#layer)** is a specific band of coverage within an [excess-of-loss](https://reinsurance.dev/glossary/#excess-of-loss) structure, defined by its [attachment point](https://reinsurance.dev/glossary/#attachment-point) and [limit](https://reinsurance.dev/glossary/#limit).
- **[Program](https://reinsurance.dev/glossary/#program)** is the structured set of reinsurance protections purchased on a defined exposure: most often a [cedent](https://reinsurance.dev/glossary/#cedent)'s line of business, but equally a reinsurer's own retrocession. A program typically consists of multiple excess-of-loss (XoL) layers stacked together, possibly combined with other sections such as a [quota share](https://reinsurance.dev/glossary/#quota-share), and represents the cedent's overall reinsurance strategy for that risk category. A cedent may have several programs (e.g. a property catastrophe program, a casualty program). A program is a set of contracts, never the internal structure of one. The [Financial Modelling](https://reinsurance.dev/financial-modelling/composition/) chapter calls that a [composition](https://reinsurance.dev/glossary/#composition).
A **program** is made up of **layers** and other sections, each backed by a **contract** (or **treaty**), and these collectively define the cedent's reinsurance protection.
:::
### Retention
The **[retention](https://reinsurance.dev/glossary/#retention)** is what the cedent keeps. In a quota share, it is the percentage not ceded (if 25% is ceded, 75% is retained). In an excess of loss contract, the cedent retains losses both below the attachment point and above the [exhaustion point](https://reinsurance.dev/glossary/#exhaustion-point): everything outside the contracted band stays with the cedent.
### Participation
A layer need not be placed with a single reinsurer.[^participation] The cedent (usually through a [broker](https://reinsurance.dev/glossary/#broker)) offers **[participations](https://reinsurance.dev/glossary/#participation)**: each reinsurer takes a percentage share of the layer. For example, a \$30M xs \$10M layer might be placed with three reinsurers taking 50%, 30%, and 20% respectively. Each participant receives its share of the premium and pays its share of any claims.
Brokers ask for more capacity than the cedent is buying, so the lines written on a placement often add up to more than the order. The excess comes off in the **[signing down](https://reinsurance.dev/glossary/#signing-down)**: the price is untouched and each reinsurer's line is cut back, except for lines written *to stand*, which are allocated in full.[^signing-down] A reinsurer's signed line is therefore not only its own decision. On an oversubscribed placement, the broker and the cedent decide whose line stands and whose is trimmed, and that decision is not a price comparison.
Why split a layer? The amounts involved are large: a single catastrophe layer can carry hundreds of millions of dollars of limit.[^layer-size] Few reinsurers want that much exposure to a single risk, and few cedents want to depend on a single counterparty. Spreading participation diversifies counterparty risk for the cedent and concentration risk for each reinsurer. It also allows reinsurers to calibrate their exposure precisely: a reinsurer might want some Florida hurricane risk but not \$100M of it, so it takes a 15% line instead.
This is distinct from a quota share: in a quota share, the proportional split applies to every loss from the ground up. With layer participation, the XoL terms (attachment, limit) apply first to the full loss, and only the resulting ceded amount is divided among participants. The layer responds as a single unit; the participation determines who funds it.
```mermaid
graph LR
L["Occurrence loss
$45M"]:::Losses --> LAY["Layer · $30M xs $10M
terms apply once, to the full loss
→ $30M ceded"]:::Process
LAY -- "50% · $15M" --> RA[Reinsurer A]:::Contract
LAY -- "30% · $9M" --> RB[Reinsurer B]:::Contract
LAY -- "20% · $6M" --> RC[Reinsurer C]:::Contract
classDef Losses fill:#F5CEBC,stroke:#B16C4B,stroke-width:1.5px,color:#2B2620
classDef Contract fill:#BFDBF8,stroke:#4F84BA,stroke-width:1.5px,color:#2B2620
classDef Process fill:#F7CBCB,stroke:#B46669,stroke-width:1.5px,color:#2B2620
```
:::note[Caldera Re]
[Caldera Re](https://reinsurance.dev/caldera-re/) takes a participation on every contract: between 10% and 30%, never the whole of one. The analytics in this site follow that order: contract terms apply first, at the full 100% layer, and the participation share scales the result only when contracts are combined into the portfolio. Standalone contract results are quoted at 100% throughout, and the [dissection](https://reinsurance.dev/financial-modelling/dissection/#step-5-participation-at-roll-up) shows the share applied at roll-up; Caldera Re's booked share appears at portfolio roll-up.
:::
### Reinstatements
When a CatXoL contract pays a claim, the limit is eroded. A **[reinstatement](https://reinsurance.dev/glossary/#reinstatement)** restores the limit for subsequent occurrences during the contract period, usually in exchange for an additional premium.
Real provisions differ in more than the reinstatement count (free or paid, with a paid reinstatement's premium set pro rata to the limit restored or the time remaining), and the [CatXoL](https://reinsurance.dev/financial-modelling/contracts/catxol/#reinstatements-as-the-aggregate-limit) and [reinstatement premium](https://reinsurance.dev/financial-modelling/beyond-loss/reinstatement-premium/) pages describe how this site models them.
:::note[Caldera Re]
Contract 1 (Florida Hurricane CatXoL) has 1 reinstatement at 100%. If a hurricane causes \$30M of ceded loss (fully exhausting the \$30M limit), the limit is reinstated once. The cedent would owe the layer an additional reinstatement premium equal to 100% of the original premium pro-rata to the proportion of limit used. If a second hurricane also exhausts the limit, there are no more reinstatements, and the contract's maximum recovery for the year is \$60M (two full limit losses) at the 100% layer; Caldera Re books its 14.5% share of that.
:::
:::note[In Practice]
Reinstatements introduce **statefulness** into the contract: the response to the second occurrence within each simulated future (a **[trial](https://reinsurance.dev/toolkit/trials/)** in the vocabulary the Analytics Toolkit defines) depends on how much limit the first occurrence consumed. This makes reinstatements different from "stateless" terms like attachment and limit, and they are not the only terms with this property: aggregate deductibles, loss corridors, and profit commissions also carry state across occurrences. Any analysis of a contract with reinstatements must track the sequence of occurrences within each trial, not only individual loss amounts.
:::
### Occurrence vs. aggregate
This distinction changes what an attachment and a limit mean.
- An **[occurrence](https://reinsurance.dev/glossary/#occurrence)** contract applies its attachment and limit to each occurrence independently. If two hurricanes each cause \$25M of loss, each is evaluated separately against the contract terms.
- An **aggregate** contract applies its attachment and limit to the total loss accumulated across all occurrences in the contract period (usually a year). An aggregate excess of loss is called an **[AggXoL](https://reinsurance.dev/glossary/#aggxol-aggregate-excess-of-loss)**, also known as an [aggregate stop loss](https://reinsurance.dev/glossary/#aggregate-stop-loss).
| Contract Type | Applies To | Example |
| --- | --- | --- |
| Occurrence (CatXoL) | Each occurrence independently | \$30M xs \$10M per occurrence |
| Aggregate (AggXoL) | Sum of all occurrences in the year | \$100M xs \$200M annual aggregate |
:::note[Caldera Re]
In [Caldera Re's](https://reinsurance.dev/caldera-re/) portfolio, Contracts 1, 4, and 6 are occurrence-level (CatXoL), while **Contract 2** (SunCoast CA/AZ Earthquake AggXoL) and **Contract 3** (SunCoast All-US AggXoL) are aggregate-level. The same attachment and limit figures mean very different things depending on whether they apply per occurrence or per year.
:::
:::caution[Watch Out]
Do not assume all reinsurance contracts work like a simple "deductible and cap" applied occurrence by occurrence. Aggregate contracts are a standard part of the market,[^aggregate-common] and they require accumulating loss across occurrences within a trial before determining the contract response. A system that only handles occurrence logic cannot evaluate them at all.
:::
The distinction determines the shape of the computation. An occurrence contract can be evaluated occurrence by occurrence. An aggregate contract requires summing across all occurrences in a trial before applying the contract terms: it needs trial-level state. The [occurrence excess](https://reinsurance.dev/financial-modelling/terms/occurrence-excess/) and [aggregate excess](https://reinsurance.dev/financial-modelling/terms/aggregate-excess/) pages formalise both.
## Perspectives on loss
The same catastrophe produces different loss figures depending on the participant's position in the risk-transfer chain. Throughout this site, all perspectives are from the reinsurer's point of view unless stated otherwise.
| Perspective | Definition |
| --- | --- |
| **[Subject loss](https://reinsurance.dev/glossary/#subject-loss)** | The loss entering the contract from the cedent's book: the input that contract terms operate on |
| **[Gross loss](https://reinsurance.dev/glossary/#gross-loss)** | What the reinsurer assumes after applying contract terms to the subject loss |
| **[Recoveries](https://reinsurance.dev/glossary/#recoveries)** | What the reinsurer gets back from its own outward protections: retrocession, industry loss warranties (ILWs), cat bonds, or other hedges |
| **[Net loss](https://reinsurance.dev/glossary/#net-loss)** | Gross minus recoveries: what actually stays on the reinsurer's books |
```mermaid
graph TD
SUB[Subject Loss]:::Losses -->|Contract terms| GROSS[Gross Loss]:::Metric
GROSS -->|Outward protections| REC[Recoveries]:::Metric
GROSS -->|Less| NET[Net Loss = Gross − Recoveries]:::Metric
REC -->|Subtracted| NET
classDef Losses fill:#F5CEBC,stroke:#B16C4B,stroke-width:1.5px,color:#2B2620
classDef Contract fill:#BFDBF8,stroke:#4F84BA,stroke-width:1.5px,color:#2B2620
classDef Process fill:#F7CBCB,stroke:#B46669,stroke-width:1.5px,color:#2B2620
classDef Metric fill:#BDE2CB,stroke:#459269,stroke-width:1.5px,color:#2B2620
```
### Terminology across the chain
The industry does not use these terms consistently.[^ground-up] The same dollar amount can be called "gross," "ceded," "subject," or "ground-up" depending on who is speaking and from which side of the contract they sit. Conversations between insurers, reinsurers, and retrocessionaires can become confusing quickly, not because the concepts are hard, but because the vocabulary shifts with the observer.
To resolve this, notice that the Subject → Gross → Recoveries → Net cycle applies identically at every level of the chain. What changes is which upstream loss amount becomes the Subject.
| Stage | Primary Insurer | Reinsurer | Retrocessionaire |
| --- | --- | --- | --- |
| **Subject** | Loss to the insured | Primary's Gross | Reinsurer's Gross |
| **Gross** | Loss assumed by the insurer | Loss assumed by the reinsurer | Loss assumed by the retro |
| **Ceded / Recoveries** | → *becomes Reinsurer's Gross* | → *becomes Retro's Gross* | → *(further cession, if any)* |
| **Net** | Gross minus Ceded | Gross minus Ceded | Gross minus Ceded |
The linkage rule: one party's ceded loss is the next party's gross loss, and one party's gross loss is the next party's subject loss. The chain extends as far as risk is transferred: a retrocessionaire buying protection from a fourth party follows the same pattern.
:::tip[Key Insight]
The insurer's **[ceded loss](https://reinsurance.dev/glossary/#ceded-loss)** is the reinsurer's **gross loss**. The reinsurer's **ceded loss** is the retrocessionaire's **gross loss**. Every cession creates the next party's assumption. This transitivity is the mechanism of risk transfer.
:::
Retrocession is where the reinsurer is itself the cedent: the loss of its own portfolio is the retro contract's subject loss, and the same contract terms apply to it. This site follows the chain that far and no further: designing an outward program and measuring what it is worth to the reinsurer are out of scope.
The stages go by other names in the market.
| This site uses | Also known as |
| --- | --- |
| Subject loss | Ground-up loss, underlying loss, inward loss |
| Gross loss | Assumed loss, loss to the book |
| Ceded / Recoveries | Outward loss, reinsurance recoveries |
| Net loss | Retained loss (reinsurer-side usage, not adopted here; see below) |
Of these, **"ground-up loss"** deserves particular care. Strictly, it means the original loss to the insured before any contract terms: the primary insurer's subject loss. But reinsurers often use "ground-up" to mean "loss before our contract terms," which is actually the cedent's gross, one step removed.[^ground-up] This site uses **[subject loss](https://reinsurance.dev/glossary/#subject-loss)** to avoid the ambiguity.
Similarly, **"ceded" and "recoveries"** describe the same cash flow from opposite ends. The cedent says "I ceded \$30M"; the cedent's accountant says "We recovered \$30M from reinsurance." Same amount, different framing. "Ceded" describes the outgoing transfer; "Recoveries" describes the financial benefit received. Both appear throughout the industry.
**"Retained"** spans two balance sheets in market usage: cedents retain the loss outside the contracted band, and reinsurers call their post-recovery position "retained loss." One word, two owners. A sentence like "the retained loss grew" is unreadable without knowing whose books the speaker means. **This site's convention:** *retained* and **[retention](https://reinsurance.dev/glossary/#retention)** always refer to the cedent's holdings (the [retained loss](https://reinsurance.dev/glossary/#retained-loss) is the part of the subject loss the contract did not absorb), and the reinsurer's post-recovery position is always **net loss**, never "retained."
:::caution[Proportional vs. non-proportional]
The clean linkage (one party's Gross becomes the next party's Subject) is most intuitive for **proportional** treaties ([quota share](https://reinsurance.dev/glossary/#quota-share) and other proportional structures), where the reinsurer participates in a defined share of the cedent's gross.
In practice, even proportional treaties scope to a specific book of business, and **non-proportional** (excess-of-loss) treaties add further filtering. The next party's subject is whatever the treaty defines as its **subject loss basis**, which may be scoped to a specific line of business, net of inuring treaties, or net of certain deductibles. The four-stage cycle still applies at each level, but the arrow between levels passes through a filter defined by the contract terms.
:::
### This site's convention
This site defaults to the **reinsurer's perspective** unless stated otherwise:
- **Subject** = what the cedent's book produces (the input)
- **Gross** = what the reinsurer assumes after contract terms (the output)
- **Recoveries** = what the reinsurer retrocedes or hedges
- **Net** = Gross − Recoveries = what stays on the reinsurer's books
Each of these can also be viewed **net of premium** (loss minus premium received) or **net of premium and expenses** (loss minus premium minus brokerage, taxes, and fees). These financial perspectives become important in the [Applications](https://reinsurance.dev/applications/) chapter; for now, the four loss perspectives above are sufficient.
## Caldera Re's contract portfolio
[Caldera Re](https://reinsurance.dev/caldera-re/)'s six contracts use every structure this page has described, and the portfolio is deliberately mixed.
*[Table: Portfolio table. See the web page: https://reinsurance.dev/foundations/products-and-contracts/]*
- **Three CatXoLs** (C1, C4, C6) covering different perils and geographies: they diversify each other because the physical processes that drive them are unrelated, so large losses from more than one of them rarely fall in the same year
- **One quota share** (C5) provides broad proportional participation in European windstorm risk
- **Two AggXoLs** (C2, C3): C2 covers SunCoast's aggregate earthquake exposure, while C3 covers SunCoast's total US exposure net of C1 and C2 recoveries
- **[Inuring](https://reinsurance.dev/financial-modelling/programs/#inuring)**: C3 explicitly deducts C1 and C2 recoveries before applying its own terms, preventing double recovery
:::tip[Key Insight]
SunCoast Insurance places three contracts with Caldera Re (C1, C2, C3). Without inuring, a large Florida hurricane year could trigger both C1 (per-occurrence hurricane) and C3 (aggregate all-US), letting SunCoast recover twice for the same losses. C3 solves this by defining its subject losses as SunCoast's total net of C1 and C2 recoveries. This is a common pattern in practice,[^inuring] and one that makes contract evaluation order-dependent.
:::
Inuring is one of [several features that real contracts add](https://reinsurance.dev/foundations/products-and-contracts/#beyond-the-basics) to these structures.
## Beyond the basics
Real-world contracts carry features this page does not take up. The [Financial Modelling](https://reinsurance.dev/financial-modelling/) chapter formalises inuring; the premium-side features below are named where they arise and not modelled, and each has a glossary entry:
| Feature | What it adjusts | Stateful? | Where this site treats it |
| --- | --- | --- | --- |
| [Sliding scale commission](https://reinsurance.dev/glossary/#sliding-scale-commission) | The ceding commission rate, with the treaty's loss experience | Yes: the commission rate depends on the year's loss ratio | Glossary only |
| [Profit commission](https://reinsurance.dev/glossary/#profit-commission) | A share of the reinsurer's underwriting profit returned to the cedent | Yes: the commission depends on the year's underwriting result | Glossary only |
| [No claims bonus](https://reinsurance.dev/glossary/#no-claims-bonus) | A premium rebate paid if no claims are made | Yes: the rebate depends on whether any claim occurred | Glossary only |
| [Loss corridor](https://reinsurance.dev/glossary/#loss-corridor) | A band of loss ratio inside a proportional treaty that the cedent takes back: the reinsurer pays its share below the band, the cedent bears the band, and the reinsurer's share resumes above it[^corridor] | Yes: its application depends on the running loss ratio | Glossary only |
| [Inuring](https://reinsurance.dev/glossary/#inuring) | Another contract's subject loss, netted of this contract's recoveries before that contract's own terms run | Across contracts, not within one | [Programs](https://reinsurance.dev/financial-modelling/programs/#inuring) |
| Multi-year term | The contract period, beyond one annual period, with limits that reset at each anniversary | Yes: state carries across years | Out of scope for the [contract period](https://reinsurance.dev/financial-modelling/terms/contract-period/) term |
| [Franchise deductible](https://reinsurance.dev/glossary/#franchise-deductible) | Whether the whole loss is covered once a threshold is exceeded, rather than only the excess | No | Glossary only |
Each of these features adds analytical complexity, but they all follow the same pattern: define a rule, apply it to loss data, and track how it interacts with other rules on the same contract. The premium-side rows all carry state because each depends on a result accumulated so far in the contract year, the same property the [reinstatement](https://reinsurance.dev/foundations/products-and-contracts/#reinstatements) note above described for the loss side.
---
Inside a reinsurer, [five roles](https://reinsurance.dev/foundations/personas/) produce, consume, or depend on the analytics of those contracts, and each asks something different of the same loss data.
[^corridor]: Chuck Thayer (Willis Re), ["Loss Sensitive Treaty Features"](https://www.casact.org/sites/default/files/presentation/sections_care_0813_presentations_thayer.pdf), CAS Boot Camp on Reinsurance Pricing Techniques, 2013. The loss corridor among the loss-sensitive features of quota-share treaties: a loss-ratio band the cedent retains, with the reinsurer's share resuming above it.
[^two-families]: Swiss Re, [*Proportional and non-proportional reinsurance*](https://newdoc.nccu.edu.tw/teasyllabus/308002308018/Swiss%20Re%20Prop.%26Non-Prop..pdf) (UM3), Christoph Bugmann, 1997. Treats proportional and non-proportional as "these two types of cover" and notes that "combinations of both types of cover also often result in good reinsurance solutions". Guy Carpenter, [Glossary of Reinsurance Terms](https://www.guycarp.com/company/news-and-events/glossary.html), which defines pro rata reinsurance as "a generic term describing quota share and surplus share reinsurance" and excess of loss as the generic term covering per risk, per occurrence, and annual aggregate forms. Neither source counts contracts, so the two families are a taxonomy here, not a measured share of the market.
[^quota-share]: David R. Clark, [*Basics of Reinsurance Pricing*](https://www.casact.org/sites/default/files/old/studynotes_clark_2014.pdf), Casualty Actuarial Society study note, rev. 2014: "The simplest example of a proportional treaty is called 'Quota Share'." Swiss Re, UM3, adds that "quota share reinsurance is simple to administer" where surplus reinsurance "is more complex and the administration more expensive".
[^surplus]: Swiss Re, UM3. The surplus retention is "defined as a fixed amount", only risks exceeding it are ceded, cession is effected on the ratio of the liability above the retention to the overall liability, and "the percentage for cession varies depending on the size of the overall liability". Guy Carpenter's glossary defines a *line* as "the amount of the reinsured's retained insurance liability in a reinsured policy".
[^capital-efficiency]: Aon Benfield, [*Solvency II for Reinsurance Managers*](https://www.aon.com/attachments/reinsurance/201006_solvency_II_reinsurance_managers_full.pdf), 2nd edition, July 2010: "the most capital efficient reinsurance products include non-proportional catastrophe covers and traditional excess of loss contracts", against continued interest in quota share "even though it is not always the most efficient economically". The underlying result is older: Ka Chun Cheung and Ambrose Lo, ["Characterizations of optimal reinsurance treaties: a cost-benefit approach"](https://stat.uiowa.edu/sites/stat.uiowa.edu/files/2024-04/Cheung_Lo_2015_Optimal_Reinsurance.pdf), *Scandinavian Actuarial Journal*, 2017, restating Borch (1960) and Arrow (1963): among cessions costing the same expected premium, the stop-loss form minimises the variance of the cedent's retained loss. The Aon paper predates Solvency II's entry into force, so the ranking is practitioner consensus and not a measured result under the regime as implemented.
[^catxol-common]: Jack Willard, ["Property aggregate reinsurance re-emerges amid expanding market capacity: Gallagher Re"](https://www.artemis.bm/news/property-aggregate-reinsurance-re-emerges-amid-expanding-market-capacity-gallagher-re/), *Artemis*, September 2025, quoting a Gallagher Re whitepaper on "the most common form of property cat occurrence cover". Swiss Re, UM3, sets out the three non-proportional forms: per risk, per event catastrophe, and aggregate excess or stop loss.
[^per-risk-pricing]: Clark, *Basics of Reinsurance Pricing*: "The main tools available for pricing per risk treaties are experience and exposure rating", with the experience rating procedure excluding "catastrophe losses … due to a single event, such as a hurricane or earthquake", while for catastrophe covers "catastrophe models are now the generally accepted approach for pricing of natural and some man-made events."
[^participation]: Julian Burling, Helen Ashenden, and Jacquetta Castle, ["London Market Issues: Leaders, Followers and Layers"](https://bila.org.uk/wp-content/uploads/old/50001225b65bf7.56104547.pdf), *Journal of the British Insurance Law Association*, Issue 124: "a single large risk may be divided between different insurers, each insurer taking only a share of the total, with several liability only (the subscription market)", and may additionally be "divided into several layers above a retention, with a different insurer (or insurers) on each layer". RAA, [*Fundamentals of Reinsurance and Glossary of Reinsurance Terms*](https://www.reinsurance.org/Common/Uploaded%20files/Fundamentals/FundamentalsofReinsuranceandGlossaryofReinsuranceTerms.pdf), which defines the interest and liabilities agreement as a contract "between the ceding insurer and one or multiple reinsurers in which the percentage of participation of each reinsurer is specified".
[^signing-down]: Homeowners Choice Property & Casualty Insurance Company, [County Weighted Industry Loss Reinsurance Contract, 2024](https://www.sec.gov/Archives/edgar/data/1400810/000095017024094718/hci-ex10_14.htm), *SEC EDGAR*, Signing Provisions: "In the event that the written lines hereon exceed 100% of the order, any lines written 'To Stand' will be allocated in full and all other lines will be signed down in equal proportions so that the aggregate signed lines are equal to 100% of the order." L.S. Howard, ["Why Reinsurance Prices Are Wrong, and How to Fix Them"](https://www.insurancejournal.com/news/international/2021/11/09/641037.htm), *Insurance Journal*, November 2021, on the practice: a broker who finds a treaty oversubscribed goes back to the market "to reduce each reinsurer's commitment by a certain percentage, in a process called signing-down, but the price stays the same." Burling, Ashenden, and Castle, "London Market Issues", records the broker's "usual practice of obtaining substantial oversubscription" and the signing indications given to leading underwriters, which the following market does not receive.
[^layer-size]: Citizens Property Insurance Corporation, [*2025 Risk Transfer Program*](https://www.citizensfla.com/documents/20702/36903169/20250625+03Aa+2025_Layer_Charts_%28WS%29.pdf), Board of Governors, June 25, 2025. The sliver layer provides "approximately \$394 million, in excess of \$2.55 billion, of annual, per occurrence coverage", and Layer 1 "provides \$500 million of coverage". Steve Evans, ["Allstate buys nationwide occurrence reinsurance to \$11.5bn"](https://www.artemis.bm/news/allstate-buys-nationwide-occurrence-reinsurance-to-11-5bn-gets-1bn-new-aggregate-cover/), *Artemis*, April 2026, describing a per-occurrence tower reaching \$11.5 billion.
[^aggregate-common]: Citizens Property Insurance Corporation, [*2025 Risk Transfer Program*](https://www.citizensfla.com/documents/20702/36903169/20250625+03Aa+2025_Layer_Charts_%28WS%29.pdf), Board of Governors, June 25, 2025. Of a \$4.49 billion program, \$3.125 billion of capital-markets coverage is placed on a multi-year annual aggregate basis against \$1.369 billion of traditional per-occurrence cover. Willard, "Property aggregate reinsurance re-emerges": in Europe "many insurers continued to purchase property aggregate coverage, sometimes as their only reinsurance protection against natural catastrophes", while whole-account aggregate cover at earnings-protection attachment "disappeared almost entirely from the menu from 2020" before returning at higher attachment points. No source counts aggregate covers as a share of contracts placed, which is why this page gives no figure.
[^ground-up]: Guy Carpenter's glossary gives "ground-up loss" two meanings in one entry: "In insurance, the gross amount of loss occurring to an insured … beginning with the first dollar of loss and prior to the application to the deductible … required by the policy. In reinsurance, the term refers to the gross amount of loss occurring to the reinsured, beginning with the first dollar of loss and after the application of deductions required by the reinsurance agreement." RAA, [*Fundamentals of Reinsurance and Glossary of Reinsurance Terms*](https://www.reinsurance.org/Common/Uploaded%20files/Fundamentals/FundamentalsofReinsuranceandGlossaryofReinsuranceTerms.pdf), records only the second meaning: "the total amount of loss sustained by the ceding company before taking into account the credit(s) due from reinsurance recoverable(s)."
[^inuring]: Clark, *Basics of Reinsurance Pricing*: "Typically, the catastrophe cover applies to the ceding company's retained exposure net of surplus share, per risk excess treaties and facultative certificates. That is, other reinsurance inures to the benefit of the catastrophe cover." Guy Carpenter's glossary works the same arrangement through numerically under "inure to the benefit of", showing the catastrophe reinsurer's payment changing with the order of application.