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🏛️ '''Aggregate excess of loss reinsurance''' is a [[Definition:Non-proportional reinsurance | non-proportional reinsurance]] contract under which a [[Definition:Reinsurer | reinsurer]] indemnifies the [[Definition:Cedent | ceding insurer]] for the portion of total cumulative losses that exceeds an agreed annual [[Definition:Attachment point | attachment point]], up to a specified limit. Sometimes called stop-loss reinsurance at the aggregate level, it differs from [[Definition:Per-occurrence excess of loss | per-occurrence]] treaties by responding to the overall volume of losses rather than to any single event. It is a key tool that primary [[Definition:Insurance carrier | carriers]] use to protect their bottom-line [[Definition:Underwriting | underwriting]] results from unexpectedly adverse loss years.

📊 Structuring this coverage requires close collaboration between the cedent's [[Definition:Actuary | actuaries]] and the reinsurer's pricing team. The attachment point may be set as a fixed dollar amount or, more commonly, as a [[Definition:Loss ratio (L/R) | loss ratio]] percentage — for instance, the treaty triggers once the cedent's annual [[Definition:Incurred loss | incurred losses]] on a defined [[Definition:Line of business | portfolio]] surpass 80% of [[Definition:Earned premium | earned premium]]. The cover then responds up to a cap, such as 120% of earned premium, beyond which the cedent again retains risk. Pricing hinges on the [[Definition:Aggregate loss distribution | aggregate loss distribution]] derived from historical data, [[Definition:Loss development | development patterns]], and [[Definition:Catastrophe model | catastrophe model]] outputs. Because the entire treaty is essentially one large bet on annual profitability, it tends to carry meaningful [[Definition:Reinsurance premium | reinsurance premiums]] and may include features like [[Definition:Co-participation | co-participation]] clauses that keep the cedent partially at risk above the attachment.

🔑 The strategic value of aggregate excess of loss reinsurance lies in its ability to smooth earnings volatility and protect [[Definition:Surplus | surplus]]. By capping the worst-case annual loss outcome, a carrier can underwrite with greater confidence, pursue growth in [[Definition:Specialty insurance | specialty lines]] with higher inherent volatility, and present a more stable financial profile to [[Definition:Rating agency | rating agencies]] and [[Definition:Insurance regulator | regulators]]. It also plays a role in [[Definition:Capital management | capital management]]: the certainty it provides can reduce the amount of [[Definition:Risk-based capital (RBC) | risk-based capital]] an insurer must hold. In reinsurance negotiations, the terms of aggregate excess of loss treaties often signal the broader market's appetite for risk — tightening attachment points and rising rates during [[Definition:Hard market | hard markets]], and loosening conditions when [[Definition:Reinsurance capacity | capacity]] is abundant.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Aggregate excess of loss]]
* [[Definition:Stop-loss reinsurance]]
* [[Definition:Non-proportional reinsurance]]
* [[Definition:Cedent]]
* [[Definition:Attachment point]]
* [[Definition:Risk-based capital (RBC)]]
{{Div col end}}

Definition:Aggregate excess of loss reinsurance - Revision history

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