| Reinsurance, also called cession, is the transaction between insurance companies who sign a cession treaty on a basis of primary insurance contract, thus transferring part of risks and liabilities from one insurer to another. With the rapid development of economy and technology, and accumulation of assets, insurer's liabilities are becoming larger and larger. The risks it takes also follow the step. In order to spread risks, balance out fluctuations and stabilize operations, an insurer must pass part risks and liabilities over its underwriting capacity to other insurers. It was the demands of risk spread and loss allocation that straight gave birth to reinsurance. Insurance companies worldwide should base their reinsurance arrangements on their own financial capacity and underwriting situation, combined with domestic laws and regulations in internal and external reinsurance markets. Reinsurance is absolutely necessary in the modern insurance industry.This Thesis first introduces history of reinsurance, four basic but most important concepts that are reinsurance, risk unit, retention and liability ceded, categories of reinsurance and makes a comparison between primary insurance and reinsurance. The first reinsurance policy, thanks to marine insurance, was born in Italy in 1370 while the first professional reinsurance company, due to a big fire, was established in Germany in 1846. Reinsurance has been more than 600 years old since 1370. During this long period, reinsurance has fallen into many different types such as facultative, obligatory and facultative-obligatory reinsurance on an arrangement basis and proportional and non-proportional reinsurance on a liability basis. Proportional reinsurance, also named as sum insured reinsurance, is one using sum insured to divide the total risk amount into primary insurer's retention and reinsurer's liability. In proportional reinsurance, the primary insurer and reinsurer proportionally share risks, premiums and losses. It can be subdivided into quota share reinsurance, surplus reinsurance and quota share & surplus complex reinsurance. Non-proportional reinsurance, titled as loss reinsurance as well, is one using loss amount to separate retention from liability ceded. Since there exists no proportional relationship between two parties' liabilities, benefits and sum insured, it's as a result given the name: non-proportional reinsurance. It includes per risk excess of loss, per event excess of loss and aggregate excess. A detailed introduction is respectively presented in Chapter 2 and 3 of This Thesis to the concepts, calculation of liability, premium and loss and main treaty clauses of each type concerned above. Clauses discussed here refer to the ones in Reinsurance Practices, 2ed., issued by Insurance Institute of America in 1997.This Thesis afterwards makes a comparison research on proportional and non-proportional reinsurance from three aspects:1. Characteristic. It concerns basis of liability distribution, premium & claim, ceding commission, premium reserve & loss reserve and claim payment.2. Application. This section specifies applications of quota share, surplus and non-proportional reinsurance in view of development history and real-life practices. Proportional reinsurance came first and quota share is its traditional and typical kind. Non-proportional reinsurance appeared late while it grows fast. Quota share reinsurance applies to small company, new coverage, balanced business with low sum insured and retrocession & open cover. Although surplus belongs to proportional reinsurance, it owns some natures of non-proportional reinsurance and therefore is more suitable for business with different sums insured and qualities. Per risk excess of loss generally covers business with small loss amount. Through per risk, primary insurer could control liability retained for each individual risk and increase underwriting capacity. Per event excess of loss is obviously used to compensate a primary insurer for catastrophic losses caused by natural disasters such...
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