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Treaty reinsurance is characterized by an agreement where a reinsurer automatically accepts a certain percentage of all risks from the primary insurer for a specific category of policies, without the need for individual risk assessment for each policy. This automatic risk-sharing mechanism simplifies the relationship between the primary insurer and the reinsurer, allowing the primary insurer to stabilize its risk exposure and manage its capital more effectively.

In this context, with treaty reinsurance, the terms are predefined in the treaty agreement, and the obligations to cede risks are automatic. This contrasts with facultative reinsurance, where individual risks are assessed and negotiated separately. The emphasis in treaty reinsurance lies in the broader, ongoing financial partnership based on the totality of risks underwritten rather than on a case-by-case basis. Thus, the essence of treaty reinsurance focuses on the seamless sharing of risk as established within the treaty, making automatic risk sharing the best descriptor of this relationship.