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🛡️ '''Reinsurance coverage''' describes the scope and terms of protection that a [[Definition:Ceding company | ceding insurer]] obtains by transferring a portion of its [[Definition:Underwriting risk | underwriting risk]] to one or more [[Definition:Reinsurer | reinsurers]] under a [[Definition:Reinsurance | reinsurance]] contract. At its core, reinsurance coverage determines which losses, perils, lines of business, or layers of exposure the reinsurer agrees to indemnify, as well as the financial limits, attachment points, and conditions governing that indemnification. The design of reinsurance coverage is one of the most consequential decisions an insurer's management team makes, directly influencing [[Definition:Net retention | net retention]], [[Definition:Catastrophe risk | catastrophe-risk]] profile, [[Definition:Solvency | solvency]] margins, and the insurer's ability to underwrite large or volatile risks.

📐 Reinsurance coverage can be structured in many forms, each suited to different risk-management objectives. [[Definition:Proportional reinsurance | Proportional treaties]]—including [[Definition:Quota share reinsurance | quota share]] and [[Definition:Surplus share reinsurance | surplus share]] arrangements—share premiums and losses between the cedant and reinsurer in agreed proportions, providing broad balance-sheet relief and premium capacity. [[Definition:Non-proportional reinsurance | Non-proportional]] structures, such as [[Definition:Excess of loss reinsurance | per-risk excess of loss]], [[Definition:Catastrophe excess of loss reinsurance | catastrophe excess of loss]], and [[Definition:Aggregate stop-loss reinsurance | aggregate stop-loss]], activate only when losses exceed a defined [[Definition:Retention | retention]] or attachment point, offering targeted protection against severity or accumulation events. [[Definition:Facultative reinsurance | Facultative reinsurance]] covers individual risks on a case-by-case basis, while treaty reinsurance provides automatic coverage for defined portfolios. The interplay of these layers—often visualized as a reinsurance "tower"—determines the cedant's maximum net exposure under various loss scenarios and is stress-tested against [[Definition:Probable maximum loss (PML) | probable-maximum-loss]] estimates and regulatory capital models such as [[Definition:Solvency II | Solvency II's]] SCR or the [[Definition:Risk-based capital (RBC) | NAIC RBC]] framework.

💡 Securing the right reinsurance coverage is a balancing act between cost and protection. In soft markets, broad coverage at favorable pricing encourages ceding companies to buy more, while hard-market conditions—such as those following major [[Definition:Natural catastrophe | catastrophe]] loss years—can see coverage terms tighten, attachment points rise, and exclusions expand. [[Definition:Reinsurance broker | Reinsurance brokers]] play a central role in structuring programs, benchmarking terms against peers, and placing coverage with diversified [[Definition:Reinsurance panel | panels]] to mitigate [[Definition:Counterparty default risk | counterparty concentration risk]]. From a regulatory standpoint, the quality and breadth of reinsurance coverage directly affect an insurer's required capital: both [[Definition:Solvency II | Solvency II]] and [[Definition:C-ROSS | C-ROSS]] grant significant capital credit for qualifying reinsurance, incentivizing well-designed programs. For [[Definition:Rating agency | rating agencies]], the adequacy and stability of reinsurance coverage is a key factor in assigning financial-strength ratings, reinforcing the principle that an insurer's risk profile is inseparable from the protection it purchases.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Reinsurance]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Quota share reinsurance]]
* [[Definition:Facultative reinsurance]]
* [[Definition:Net retention]]
* [[Definition:Catastrophe risk]]
{{Div col end}}

Definition:Reinsurance coverage - Revision history

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