> For the complete documentation index, see [llms.txt](https://docs.re.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.re.xyz/how-reinsurance-works/deal-types-as-payoff-shapes.md). # Deal types as payoff shapes This section will cover the various types of reinsurance treaties. The varying types of reinsurance policies are designed to meet the needs of insurers based on the nature of the risks they're covering and the kind of protection they're looking for. There are two types of reinsurance contracts: **proportional** and **non-proportional**. Each has its own subcategories. ### Proportional Treaties Proportional reinsurance contracts share a defined percentage of both the premiums and loss (that is, the percentage is always the same for both) between insurer and reinsurer. For example, a reinsurer that takes on 25% of the risk always receives 25% of the premiums. Proportional reinsurance is best suited for insurance in which losses are more frequent, more predictable, and more evenly distributed (that is, less capacity for extremity). There are two types of proportional reinsurance contracts: quota share and surplus share. #### Quota Share Quota shares represent the most common type of proportional reinsurance traded in the reinsurance market. In a quota share treaty, the reinsurer immediately takes on a percentage of the premiums across a given portfolio in exchange for immediately taking on the same percentage of the loss. All of CoverRe SPC’s current reinsurance policies are proportional quota share contracts. #### Surplus Share A surplus share treaty is a proportional reinsurance agreement where the insurer keeps a set “line” of risk and cedes the excess above that retention, policy by policy, to the reinsurer. In practice, surplus share agreements are rare. ### Non-Proportional Non-proportional reinsurance contracts require the reinsurer to pay losses above a defined threshold. Unlike proportional treaties, premiums in non-proportional treaties are not proportionally tied to risk. Non-proportional reinsurance is best suited for insurance lines with major tail risk (that is, for severity protection). Catastrophe insurance is a great example. There are three types of non-proportional reinsurance: per risk excess of loss, per occurrence excess of loss, and stop loss. #### Per-Risk Excess of Loss Per-risk excess of loss reinsurance treaties protect against large losses from a single policy. If a single insured risk produces a large loss, the reinsurer pays losses above the attachment point up to the limit. This refers to individual risks within any given policy. For example: * A reinsurer takes on a policy for 100 commercial buildings, with a $1m attachment point and a $4m limit. * If the insurer’s losses on any one of those buildings exceeds $1m, the reinsurer covers losses of up to an additional $4m. * The reinsurance treaty applies individually to each of those buildings rather than to the group as a whole. #### Per-Occurrence Excess of Loss Per-occurrence excess of loss treaties protect against large losses from a single event. For example: * A reinsurer takes on risk from a catastrophe excess of loss treaty (such as insurance against a hurricane), with a $10m attachment point and a $40m limit * If the insurer’s losses due to one hurricane exceeds $10m, the reinsurer covers up to $40m in losses past that $10m. * The reinsurance treaty applies to *all* losses from one event, rather than each claim. #### Stop Loss Stop-loss reinsurance treaties protect against a bad overall result for insurance companies. Instead of applying on a per risk or a per occurrence level, they apply across the entire insurance portfolio. As the name suggests, they aim to stop an insurance company’s losses after a certain point. For example: * A reinsurer takes on risk from an entire insurance portfolio, with a $50m attachment point and a $200m limit * If the insurer’s aggregate losses exceed $50m, the reinsurer covers up to $200m in losses past that $50m line. * *All* losses from that portfolio apply to the policy ### Catastrophe vs. Non-Catastrophe Catastrophe exposure – the total potential loss a reinsurer faces from a single large-scale event – is the primary driver of volatility in a reinsurer’s portfolio. Whether a reinsurance contract covers catastrophe or non-catastrophe losses only is a critical distinction: catastrophe reinsurance is more volatile, and more likely to result in severe losses that threaten a reinsurer’s financial solvency. #### Catastrophe Catastrophe reinsurance covers low-frequency but high-severity events such as hurricanes, floods, wildfires, and earthquakes. Even if the losses from individual claims are relatively low, they can accumulate, and one event can affect large numbers of policyholders simultaneously. #### Non-Catastrophe Non-catastrophe reinsurance covers high-frequency but low-severity losses. Covered events do not generally affect large numbers of policyholders in the same way as they do under catastrophe portfolios. Non-catastrophe reinsurance is both more stable and predictable than catastrophe reinsurance. Re focuses on writing reinsurance with little to no catastrophe exposure, thereby avoiding the sort of high volatility that catastrophe exposure can bring. *** *For educational and informational purposes only. Nothing on this Site is investment, financial, legal, or tax advice, or an offer, solicitation, or recommendation to buy, sell, or hold any digital asset, including reUSD and reUSDe. Yields are not guaranteed and all figures are illustrative, not a promise of return; past performance is not a reliable indicator of future results. Digital assets involve significant risk, including total loss of principal — the Tokens are not bank deposits and are not insured by any government agency. The Tokens are available only to eligible non-U.S. persons in permitted jurisdictions and are subject to KYC/AML requirements. The binding terms of the applicable agreements govern and prevail over this summary. 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