SOFA-CFE · Question #325
Proportional reinsurance is defined as pro rata reinsurance.
The correct answer is A. True. Proportional reinsurance and pro rata reinsurance are two names for the same concept, making A (True) correct. In this arrangement, the reinsurer shares a fixed proportion of both premiums and losses with the ceding insurer - the risk, premium, and claims are all split in the…
Question
Proportional reinsurance is defined as pro rata reinsurance.
Options
- ATrue
- BFalse
How the community answered
(49 responses)- A82% (40)
- B18% (9)
Explanation
Proportional reinsurance and pro rata reinsurance are two names for the same concept, making A (True) correct. In this arrangement, the reinsurer shares a fixed proportion of both premiums and losses with the ceding insurer - the risk, premium, and claims are all split in the same agreed-upon ratio.
Option B (False) is incorrect because there is no meaningful distinction between the two terms; industry usage treats them as synonymous, and most reinsurance textbooks and glossaries define them interchangeably.
Memory tip: Think of "pro rata" as Latin for "in proportion" - both words capture the same idea of splitting things by a fixed share. If you remember that pro rata = proportional in everyday math contexts (e.g., pro-rated rent), the equivalence in reinsurance follows naturally.
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