[samfisher83]

You are right I guess they could be covering a majority of the claim, but I would guess their reinsurance percentage is probably a high percentage.

For example if the probability of fire is 1%, but due to their limited geographical focus they were covering an entire building of 30 apartment and their coverage is 100 dollars well their rate should be 1 dollar + x%, but if their is a fire their payout will be 3000 dollars due to that correlation of all the apartments burning down. In that case the reinsurance company would have to cover that. If I were Berkshire I would have to price the policy higher for the increase risk.

[BillinghamJ]

Reinsurance isn't generally done on a percentage basis. It's generally done on a "the value of any single claim above X amount" basis. "X" is commonly around 1 million dollars.

The insurer pays 0-X, then the reinsurer (and their reinsurers respectively) pay X onwards.

[6stringmerc]

What you've noted does exist, but the second line is more like building a 'tower' which is still in the primary layer. There's quite a bit of diversity in the reinsurance market so you're right about certain types, usually purchased by small businesses with large vehicles (cement mixers) who can't get enough in the primary.

But, in insurance companies buying insurance, there's some differences.

I'm not licensed but I do know the "Quota Share" structure is quite industry accepted for a few different lines (property being one, casualty, auto). So the % of risk retained versus ceded at various points to reinsurers is exactly the contract structure. Within that structure there are some limits and retentions that get hammered out during the contract and negotations ($XXX,XXX per occurrence of X, Y, Z, etc). But the point of this is that yes a company can retain XX% and reinsurers, usually several, split up dibs on the other XX%, sometimes in layers as well.

It's pretty interesting stuff and the numbers of what's out in the markets for underwriting is definitely an eye opener.