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📋 '''Per risk excess of loss''' is a [[Definition:Reinsurance | reinsurance]] arrangement that protects the [[Definition:Ceding company | ceding company]] against large losses on any single [[Definition:Risk | risk]] — typically an individual policy or insured location — that exceed a predetermined [[Definition:Retention | retention]]. Unlike [[Definition:Per occurrence excess of loss | per occurrence excess of loss]], which aggregates all losses from a single event across the insurer's portfolio, per risk excess of loss operates at the individual risk level, responding when a particular policy or insured interest generates a loss beyond the cedent's comfort zone. This form of [[Definition:Excess of loss reinsurance | excess of loss reinsurance]] is especially prevalent in [[Definition:Property insurance | property]] and [[Definition:Marine insurance | marine]] lines, where individual insured values can be substantial.

⚙️ The mechanics are straightforward in principle but require careful definition in practice. The treaty specifies a retention — say $2 million — and a limit — say $8 million excess of $2 million — per individual risk. When a single insured property suffers a fire loss of $7 million, the cedent absorbs the first $2 million and recovers $5 million from the reinsurer. What constitutes a "risk" is a crucial contractual definition: the treaty's [[Definition:Risk definition clause | risk definition clause]] determines whether multiple buildings at one location count as one risk or several, whether common ownership links separate properties, and how shared exposures like [[Definition:Business interruption insurance | business interruption]] values are allocated. Ambiguity here can generate disputes, particularly after large [[Definition:Catastrophe | catastrophe]] events where many individual risks are affected simultaneously. Per risk excess of loss treaties typically sit below the cedent's [[Definition:Catastrophe excess of loss | catastrophe excess of loss]] program in the overall reinsurance architecture, addressing severity on individual risks while the catastrophe layers handle event-level accumulations.

💡 This structure gives insurers the confidence to write larger individual risks than their own [[Definition:Net retention | net retention]] would otherwise permit, effectively expanding their underwriting capacity without proportionally increasing balance-sheet exposure. It is particularly valuable for regional or mid-sized carriers in markets like the United States, continental Europe, and parts of Asia, where a single industrial complex, high-value dwelling, or commercial portfolio could generate a loss that dwarfs the insurer's comfortable retention. Pricing reflects the [[Definition:Loss experience | loss experience]] on the cedent's book, the volatility of the underlying line, and the attachment probability derived from [[Definition:Actuarial analysis | actuarial models]]. Because per risk excess of loss protects against single-risk severity rather than correlated multi-risk events, [[Definition:Reinsurer | reinsurers]] evaluate it differently from catastrophe covers, focusing more on the cedent's [[Definition:Underwriting | underwriting]] quality, risk selection, and [[Definition:Probable maximum loss (PML) | PML]] assessments for individual insured locations.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Per occurrence excess of loss]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Retention]]
* [[Definition:Catastrophe excess of loss]]
* [[Definition:Proportional reinsurance]]
* [[Definition:Risk definition clause]]
{{Div col end}}

Definition:Per risk excess of loss - Revision history

PlumBot: Bot: Creating new article from JSON