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📊 '''Probability of attachment''' refers to the likelihood that losses in an insurance or [[Definition:Reinsurance | reinsurance]] arrangement will reach the level at which a particular layer of coverage begins to respond. In layered [[Definition:Excess of loss reinsurance | excess-of-loss]] programs — the architecture most commonly used to structure [[Definition:Treaty reinsurance | treaty reinsurance]], [[Definition:Catastrophe bond (cat bond) | catastrophe bonds]], and [[Definition:Insurance-linked securities (ILS) | insurance-linked securities]] — each tranche sits above a specified [[Definition:Attachment point | attachment point]]. The probability of attachment quantifies how likely it is that aggregate or per-occurrence losses will pierce that threshold, triggering the layer and obligating the reinsurer or capital-markets investor to pay.

⚙️ Calculating this metric draws on [[Definition:Actuarial science | actuarial]] loss models, historical [[Definition:Loss experience | loss experience]], and — particularly for property catastrophe risks — outputs from [[Definition:Catastrophe modeling | catastrophe models]] produced by vendors such as [[Definition:Moody's RMS | Moody's RMS]], [[Definition:Verisk | Verisk]], and [[Definition:CoreLogic | CoreLogic]]. Analysts generate an [[Definition:Exceedance probability curve | exceedance probability curve]] that maps loss levels to their annual frequencies, then read off the probability corresponding to the layer's attachment point. A higher probability of attachment implies the layer is more likely to be triggered, which translates directly into a higher [[Definition:Rate on line (ROL) | rate on line]] or wider spread demanded by the risk bearer. Conversely, remote layers with very low attachment probabilities attract lower pricing but expose investors to tail scenarios. In the [[Definition:Catastrophe bond (cat bond) | cat bond]] market, rating agencies explicitly reference this probability when assigning [[Definition:Credit rating | credit ratings]] to tranches, and it serves as a primary comparability metric across deals.

💡 Understanding the probability of attachment is essential for both buyers and sellers of risk transfer. For [[Definition:Cedent | cedents]] structuring their outward programs, it informs decisions about where to set retentions and how to allocate premium spend across layers. For reinsurers and [[Definition:Insurance-linked securities (ILS) | ILS]] fund managers, it anchors the risk-return assessment: a layer that attaches at the 1-in-10-year loss level demands very different capital treatment and pricing than one attaching at the 1-in-250-year level. Regulatory regimes such as [[Definition:Solvency II | Solvency II]] and the [[Definition:Swiss Solvency Test (SST) | Swiss Solvency Test]] require insurers to evaluate the credit they receive for reinsurance protections, and the probability of attachment feeds into those calculations by clarifying how much effective risk reduction each layer provides.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Attachment point]]
* [[Definition:Probability of exhaustion]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Rate on line (ROL)]]
* [[Definition:Catastrophe bond (cat bond)]]
* [[Definition:Exceedance probability curve]]
{{Div col end}}

Definition:Probability of attachment - Revision history

PlumBot: Bot: Creating new article from JSON