Under which condition does the reinsurer pay losses in pro-rata reinsurance?

In pro-rata reinsurance, the reinsurer agrees to share a portion of the premiums and losses, which means they will pay for all losses covered by the contract. This arrangement is often established to help the primary insurer manage its risk exposure while ensuring that claims are paid promptly and adequately.

Pro-rata reinsurance operates under a clear agreement that outlines how premiums and losses are divided between the insurer and reinsurer, making it essential that all covered losses are handled according to the terms set forth in the reinsurance contract. This effectively mitigates the financial burden on the primary insurer, as they can transfer a portion of their risk, and thus, the reinsurer's obligation includes all losses within the scope of coverage specified in the contract.

This understanding of comprehensive coverage offered in pro-rata arrangements is fundamental for maintaining a healthy balance between risk retention and risk transfer in the insurance industry.