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Proportional Treaty

In this type of treaty, the reinsure and the ceding company share the premium proportionally. For example, as per the agreement, if the proportionate share of the
premium between both the parties (ceding insurer and reinsurer) is 40% and 60% respectively, then in case of total loss of Rs. 100 Crores, primary insurer will pay Rs. 40 Crores and the reinsurer the remaining Rs. 60 Crores.

Each year insurance companies provide their reinsurers with information on intended policies concerning maximum exposures, estimated premium income, classes of business, marketing strategies, etc. Before the start of the year, they finalise treaty conditions depending upon the program and terms negotiated.

Facultative

Facultative reinsurance contracts cover individual policies and are written on an individual basis. This agreement covers specific risks and requires substantial personnel and technical resources for underwriting individual risk. Since there is a potential loss in these types of agreement, reinsurer must possess necessary knowledge to calculate each risk accurately. These contracts are also used to supplement treaty arrangements, when treaties don't cover any specific risk or exclude that risk. Separate facultative can be used to cover this by entering into agreement with another reinsurer.

Retrocessions

Sometimes reinsurer also may not be able to cover full exposure as per agreements so he again buys its own reinsurance known as retrocessions,to stabilize results and fulfills risk-spreading objectives of reinsurance transactions.

Reinsurance agreements range from simple to complex. An insurer may purchase reinsurance cover from a single reinsurer or it can cover the same risk by reinsuring it with many reinsurers. This process is known as Layering. It is again one of the risk management tools of primary insurers.

Non Traditional Techniques

From past few years, some new risk transfer techniques have been used known as "Alternative Risk Transfer" Techniques like finite reinsurance for both life and non-life reinsurance and multi-year, multi-risk property / casualty contracts.