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🔄 '''Per-risk excess-of-loss reinsurance''' is a form of [[Definition:Non-proportional reinsurance | non-proportional reinsurance]] in which the [[Definition:Reinsurer | reinsurer]] indemnifies the [[Definition:Ceding company | ceding insurer]] for the portion of a loss on a single risk that exceeds a specified [[Definition:Retention | retention]] (also called the attachment point), up to a defined [[Definition:Reinsurance limit | limit]]. Unlike [[Definition:Catastrophe excess-of-loss reinsurance | catastrophe excess-of-loss reinsurance]], which responds when aggregate losses from a single event across many policies breach a threshold, per-risk excess-of-loss applies on an individual risk basis — for example, a single building, a single marine hull, or a single insured entity. This structure is fundamental to how primary [[Definition:Insurance carrier | insurers]] manage their exposure to large individual losses across lines such as [[Definition:Property insurance | property]], [[Definition:Marine insurance | marine]], [[Definition:Engineering insurance | engineering]], and [[Definition:Fire insurance | fire insurance]].

📐 The mechanics are straightforward in concept but require careful calibration in practice. The ceding insurer selects a retention level that reflects its risk appetite and capital position — say, $5 million per risk — and purchases reinsurance that responds to individual losses exceeding that amount, up to an agreed limit (e.g., $20 million excess of $5 million). If a covered loss on a single risk totals $18 million, the ceding insurer bears the first $5 million and the reinsurer pays the remaining $13 million. Pricing is driven by the ceding insurer's historical [[Definition:Loss experience | loss experience]], the profile of its book (including the distribution of [[Definition:Total insured value (TIV) | total insured values]] and [[Definition:Probable maximum loss (PML) | probable maximum losses]]), the attachment point relative to average and large loss frequency, and prevailing [[Definition:Reinsurance market | reinsurance market]] conditions. Defining what constitutes a single "risk" is one of the most negotiated aspects of the contract: the [[Definition:Reinsurance treaty | treaty]] must specify risk definitions clearly to avoid disputes about whether adjacent properties, related entities, or bundled exposures should be treated as one risk or several.

💡 Per-risk excess-of-loss reinsurance serves as a cornerstone of prudent [[Definition:Capital management | capital management]] for primary insurers, enabling them to write individual risks with high insured values while capping their net exposure to any single large loss. Without this protection, an insurer writing commercial property or industrial risks would need to maintain substantially more capital to absorb shock losses, or would be forced to restrict the size of risks it could accept. The structure also gives insurers the confidence to compete for large accounts in the [[Definition:Commercial insurance | commercial]] and [[Definition:Specialty insurance | specialty]] markets, knowing that their reinsurance program will absorb the peak severity. For reinsurers, per-risk excess-of-loss treaties offer a diversified book of business with limited [[Definition:Loss aggregation | aggregation]] exposure (since the trigger is individual-risk losses rather than event-driven accumulations), though they must remain vigilant about the adequacy of risk definitions and the ceding insurer's [[Definition:Underwriting | underwriting]] discipline. Globally, this treaty form features prominently in reinsurance programs structured through [[Definition:Lloyd's of London | Lloyd's]], Continental European markets, and Asian hubs alike.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Excess-of-loss reinsurance]]
* [[Definition:Catastrophe excess-of-loss reinsurance]]
* [[Definition:Non-proportional reinsurance]]
* [[Definition:Retention]]
* [[Definition:Probable maximum loss (PML)]]
* [[Definition:Quota share reinsurance]]
{{Div col end}}

Definition:Per-risk excess-of-loss reinsurance - Revision history

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