PlumBot: Bot: Creating new article from JSON

2026-03-10T04:52:08Z

Bot: Creating new article from JSON

New page

🛡️ '''Excess of loss reinsurance''' is a form of non-proportional [[Definition:Reinsurance | reinsurance]] in which the [[Definition:Reinsurer | reinsurer]] indemnifies the [[Definition:Ceding company | ceding company]] for losses that exceed a predetermined [[Definition:Retention | retention]] (also called the attachment point), up to a specified limit. It stands in contrast to [[Definition:Proportional reinsurance | proportional reinsurance]], where premiums and losses are shared on a fixed percentage basis regardless of loss size. In the insurance industry, excess of loss treaties are foundational tools for protecting an insurer's balance sheet against the financial impact of large individual claims or the accumulation of many claims from a single [[Definition:Catastrophe | catastrophic event]].

📊 The mechanics hinge on the retention and the treaty limit. Suppose an insurer sets a retention of $2 million per occurrence and buys excess of loss cover up to $10 million. If a single claim costs $7 million, the insurer absorbs the first $2 million and the reinsurer pays the remaining $5 million. Losses below $2 million never touch the treaty. These arrangements come in several varieties: per-risk excess of loss protects against large individual losses on a single policy; per-occurrence (or per-event) excess of loss responds when a single event — such as a hurricane — generates aggregate losses above the retention across many policies; and [[Definition:Aggregate excess of loss reinsurance | aggregate excess of loss]] triggers when cumulative losses over a defined period breach a threshold. [[Definition:Underwriter | Underwriters]] on both sides negotiate the retention, limit, and [[Definition:Reinsurance premium | premium]] using [[Definition:Actuarial analysis | actuarial models]], historical [[Definition:Loss experience | loss experience]], and [[Definition:Catastrophe model | catastrophe models]].

💡 Without excess of loss protection, many insurers would be unable to write the large or catastrophe-exposed risks that their [[Definition:Policyholder | policyholders]] need covered. The product effectively caps an insurer's downside on any single event, enabling more confident [[Definition:Underwriting | underwriting]] and smoother earnings. It also plays a central role in [[Definition:Capital management | capital management]]: regulators and [[Definition:Rating agency | rating agencies]] give credit for well-structured reinsurance programs when evaluating an insurer's [[Definition:Solvency | solvency]] and financial strength. During hard-market cycles, the cost and availability of excess of loss cover can shift dramatically, rippling through [[Definition:Primary insurance | primary market]] pricing and capacity across entire lines of business.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Proportional reinsurance]]
* [[Definition:Retention]]
* [[Definition:Catastrophe excess of loss reinsurance]]
* [[Definition:Aggregate excess of loss reinsurance]]
* [[Definition:Reinsurance treaty]]
* [[Definition:Ceding company]]
{{Div col end}}

Definition:Excess of loss reinsurance - Revision history

PlumBot: Bot: Creating new article from JSON