What's the difference between surplus and stop loss? To me both seems to have a retention limit and then the rest of the claim is payable by reinsurer. Stop loss seems to have an upper limit as well, but is that the only difference which made one a proportional reinsurance and the other a non-proportional one?
Surplus is proportional, so premiums and claims are generally shared in the given proportion. Basically you have a retention limit (say R) which is how much the insurer is willing to keep and a Estimated Maximum Loss (EML) (I think thats the right "E" word) which is determined by the insurer for a given policy. The proportion retained is then the R / EML and from that point on it behaves exactly like quota share. ie any policy the reinsurer takes (EML-R)/EML % of the premium and pays (EML-R)/EML % of the claim. It doesnt matter if the claim is below/above the EML (although the reinsurer may want to review the treaty if it is). Stop loss is non-proportional and only covers claims over the agreed Excess point. The reinsurer then only pays (Total Claims - Excess) for whatever the agreed premium was.
