View source for Definition:Property catastrophe excess-of-loss reinsurance

🌪️ '''Property catastrophe excess-of-loss reinsurance''' is a form of [[Definition:Non-proportional reinsurance | non-proportional reinsurance]] that protects a [[Definition:Ceding company | ceding company]] against the accumulation of [[Definition:Property claim | property claims]] arising from a single catastrophic event, such as a hurricane, earthquake, or wildfire. Unlike [[Definition:Proportional reinsurance | proportional treaties]] that share every risk on a quota basis, this structure only triggers when the cedent's aggregate losses from a qualifying [[Definition:Catastrophe event | catastrophe event]] exceed a pre-agreed [[Definition:Retention | retention]] — often called an attachment point. It sits at the heart of most [[Definition:Reinsurance program | reinsurance programs]] for insurers with significant [[Definition:Property insurance | property]] exposure, serving as the primary financial shield against peak natural-disaster losses.

⚙️ The mechanics revolve around a defined [[Definition:Treaty layer | treaty layer]] expressed as a monetary band — for example, $50 million excess of $25 million — which means the [[Definition:Reinsurer | reinsurer]] pays for losses that fall between $25 million and $75 million per event, while the cedent absorbs everything below the attachment and anything above the [[Definition:Treaty limit | treaty limit]] (unless a higher layer exists). [[Definition:Reinstatement | Reinstatement provisions]] govern whether coverage is restored after an event, and at what additional [[Definition:Reinsurance premium | premium]]. Pricing hinges on sophisticated [[Definition:Catastrophe model | catastrophe models]] that simulate thousands of potential event scenarios to estimate [[Definition:Expected loss | expected losses]], [[Definition:Probable maximum loss (PML) | probable maximum losses]], and [[Definition:Return period | return periods]]. These models, produced by vendors such as Moody's RMS, Verisk, and CoreLogic, are central to every negotiation between cedent and reinsurer, and much of the capacity is placed through the [[Definition:Reinsurance broker | reinsurance broker]] market or at [[Definition:Lloyd's of London | Lloyd's of London]].

📊 For insurers that write homeowners, commercial property, or [[Definition:Agricultural insurance | agricultural lines]], securing adequate catastrophe excess-of-loss protection is often a regulatory and rating-agency expectation, not merely a strategic choice. Rating agencies like A.M. Best and S&P evaluate whether a company's [[Definition:Net retention | net retention]] relative to its [[Definition:Surplus | surplus]] is prudent, and inadequate cat reinsurance can trigger a downgrade. Beyond solvency protection, the product also stabilizes [[Definition:Loss ratio | loss ratios]] year over year, enabling insurers to maintain competitive [[Definition:Premium rate | premium rates]] without having to hold prohibitively large reserves for tail risk. As climate volatility intensifies, capacity and pricing in this market increasingly influence which regions and perils primary insurers are willing to cover at all.

'''Related concepts:'''
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* [[Definition:Catastrophe bond (cat bond)]]
* [[Definition:Aggregate excess-of-loss reinsurance]]
* [[Definition:Occurrence limit]]
* [[Definition:Retrocession]]
* [[Definition:Industry loss warranty (ILW)]]
* [[Definition:Probable maximum loss (PML)]]
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