Reinsurance contracts may be proportional or non-proportional. Loss settlement clauses are observed in both types. The main purpose of loss settlement clauses is to record what the parties to a reinsurance contract have agreed as to how the reinsured may prove its loss in order to claim under its reinsurance.

The usual intention, if the reinsurer has sufficient faith in its cedant to settle inwards losses properly, is to mitigate the burden on the reinsured of having to prove its loss to the standard required by the common law and to minimise the need for reinsurers to reinvestigate underlying losses. Some loss settlement clauses also impose express safeguards or provisos to ensure that the bargain struck by the reinsurer is not undermined by binding loss settlements that are beyond the scope of cover provided.

Loss settlement language may also be combined with words that incorporate the terms and conditions of the underlying policy so as to align the scope of cover with it (typically, but not exclusively in proportional reinsurance policies). The paradigmatic example