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🌪️ '''Catastrophe excess of loss''' is a [[Definition:Reinsurance | reinsurance]] structure in which the [[Definition:Reinsurer | reinsurer]] agrees to pay the [[Definition:Cedent | ceding insurer]] for aggregate losses from a single catastrophic event that exceed a specified retention, up to a defined limit. It is one of the most widely used forms of [[Definition:Non-proportional reinsurance | non-proportional reinsurance]], designed to protect an insurer's balance sheet against the outsized financial impact of hurricanes, earthquakes, wildfires, and other large-scale [[Definition:Catastrophe peril | perils]]. The retention — often called the [[Definition:Attachment point | attachment point]] — represents the amount of loss the ceding insurer absorbs before reinsurance coverage kicks in.

🔧 A typical catastrophe excess of loss program is structured in layers, each with its own attachment point, limit, and [[Definition:Reinsurance premium | premium]]. For instance, an insurer might retain the first $50 million of losses from a single catastrophe event and then purchase three layers of protection covering losses from $50 million to $250 million. Lower layers, which are more likely to be triggered, command higher [[Definition:Rate on line (ROL) | rates on line]] than upper layers, which respond only to truly extreme events. The definition of what constitutes a single "occurrence" is governed carefully by the contract's [[Definition:Hours clause | hours clause]] and event definition language, as ambiguity there can lead to significant [[Definition:Coverage dispute | coverage disputes]] during complex or prolonged catastrophe events.

📈 Insurers operating in [[Definition:Catastrophe-exposed market | catastrophe-exposed markets]] — coastal property, earthquake zones, wildfire-prone regions — rely heavily on this structure to manage [[Definition:Peak risk | peak risk]] concentrations. Without catastrophe excess of loss protection, a single major event could consume an insurer's surplus many times over, threatening solvency. [[Definition:Rating agency | Rating agencies]] and regulators scrutinize these programs closely when evaluating an insurer's financial strength and [[Definition:Risk-based capital (RBC) | risk-based capital]] adequacy. The pricing and availability of catastrophe excess of loss coverage also serve as a barometer for the broader reinsurance market, tightening sharply after loss-heavy years and softening when capacity is abundant.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Non-proportional reinsurance]]
* [[Definition:Attachment point]]
* [[Definition:Rate on line (ROL)]]
* [[Definition:Hours clause]]
* [[Definition:Catastrophe reinsurance]]
* [[Definition:Aggregate excess of loss]]
{{Div col end}}

Definition:Catastrophe excess of loss - Revision history

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