Alberta General Insurance Level 1 Practice Exam

Non-proportional reinsurance operates based on the size of the loss incurred by the primary insurer. In this arrangement, the reinsurer is only responsible for covering losses that exceed a certain predetermined threshold, known as the attachment point. This means that if a loss surpasses this level, the reinsurer will cover the amount of the loss up to a specified limit.

For instance, if the primary insurer experiences a catastrophic event that results in significant claims, the non-proportional reinsurer will intervene only when those claims exceed the agreed-upon threshold. The reinsurer is essentially protecting the insurer against large, unexpected losses rather than a portion of every claim.

This approach contrasts with proportional reinsurance, where the reinsurer shares a fixed percentage of every loss and premium with the primary insurer. Thus, the correct choice revolves around the fact that the reinsurer’s involvement and the amount it pays out are directly tied to the size of the loss incurred, illustrating the unique nature of non-proportional arrangements.