Category: Reinsurance structures · Reviewed by Chrissie Anderson, Client Executive · Last reviewed 2026-06-05
Non-proportional reinsurance is reinsurance under which the reinsurer responds to losses above an agreed retention rather than sharing each risk in fixed proportion. The cedant pays a premium calculated to reflect the reinsurer’s expected losses above the retention; in return the reinsurer indemnifies the cedant for losses falling within the contractual layer.
Category: Reinsurance structures Also known as: XL reinsurance, excess of loss, non-pro reinsurance Related concepts: excess of loss reinsurance, stop loss reinsurance, proportional reinsurance
Non-proportional reinsurance has three principal forms: risk excess of loss (responding to individual risk losses above the retention); catastrophe excess of loss (responding to losses from a single catastrophic event); and aggregate excess of loss (responding to the aggregate of all losses on a portfolio above an annual aggregate retention). Stop loss is a specific form of aggregate excess of loss that responds to a loss ratio above a defined percentage.
Unlike proportional reinsurance, non-proportional reinsurance is priced by the reinsurer based on its assessment of the expected loss cost in the layer, plus a margin for capital, expenses and profit. The price is typically expressed as a ‘rate on line’ — the premium as a percentage of the contract limit — although it may also be calculated as a percentage of subject premium income.
Non-proportional reinsurance contracts are governed by general English contract law and by the Insurance Act 2015. Solvency II treats non-proportional reinsurance as risk-mitigation in the calculation of underwriting risk SCR, with the reduction reflecting the level of cover relative to the cedant’s gross losses.
Non-proportional reinsurance is the principal tool for catastrophe and large-loss protection. It is purchased to limit the cedant’s exposure to peak events (single large risks, catastrophic accumulations) without ceding a proportion of the entire portfolio. Cedants typically combine proportional cessions (for capacity and capital relief) with non-proportional cover (for catastrophe and large-loss protection).
The layer structure permits multiple reinsurers to participate at different attachment points: lower layers (closer to the retention) carry higher expected loss and higher rate on line; upper layers carry lower expected loss and lower rate on line. The cedant typically buys a programme of multiple layers to cover the desired range.
An illustrative example: a UK insurer purchases a risk XL of £20m excess of £5m, a catastrophe XL of £100m excess of £25m and an aggregate excess of loss treaty of £30m excess of an annual aggregate retention of £40m. These three programmes together protect the cedant against individual large losses, catastrophic accumulations and adverse annual experience.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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