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📐 '''Reinsurance layer''' is a defined band of coverage within a [[Definition:Reinsurance program | reinsurance program]], bounded by an [[Definition:Attachment point | attachment point]] at the bottom and a [[Definition:Reinsurance limit | limit]] at the top, that specifies the range of losses a [[Definition:Reinsurer | reinsurer]] agrees to absorb. Layering allows a [[Definition:Ceding company | ceding company]] to slice its aggregate risk into discrete segments, each of which can be priced, placed, and managed independently. The concept is fundamental to [[Definition:Excess of loss reinsurance | excess-of-loss]] program design, where lower layers attach closer to expected loss levels and upper layers respond only to severe or [[Definition:Catastrophe loss | catastrophic]] events.

⚙️ In practice, a cedent and its [[Definition:Reinsurance intermediary | reinsurance intermediary]] structure a tower of successive layers. For example, a property [[Definition:Catastrophe reinsurance | catastrophe program]] might feature a first layer covering $50 million excess of a $25 million [[Definition:Retention | retention]], a second layer of $75 million excess of $75 million, and so on up through several hundred million dollars or more. Each layer attracts its own panel of reinsurers, its own [[Definition:Rate on line (ROL) | rate on line]], and its own set of [[Definition:Reinsurance contract | contract]] terms. Lower layers carry higher [[Definition:Expected loss | expected-loss]] ratios and command higher premiums per unit of limit, while upper layers are cheaper per dollar of coverage but expose reinsurers to severe-tail scenarios that require careful [[Definition:Catastrophe modeling | catastrophe-model]] analysis.

💡 Structuring layers thoughtfully can materially affect a cedent's cost of [[Definition:Risk transfer | risk transfer]] and capital efficiency. By adjusting where layers attach and how wide each band is, a cedent balances the trade-off between [[Definition:Reinsurance premium | premium]] outlay and the degree of [[Definition:Net retention | net retention]] it is comfortable carrying. Diversification of reinsurer panels across layers also strengthens [[Definition:Reinsurance security | security]]: if a reinsurer on one layer defaults or withdraws capacity, the impact is confined to that segment. During hard phases of the [[Definition:Reinsurance market cycle | market cycle]], capacity often tightens on lower, loss-affected layers first, pushing cedents to increase retentions or restructure the tower to maintain acceptable coverage at manageable cost.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Attachment point]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Reinsurance limit]]
* [[Definition:Rate on line (ROL)]]
* [[Definition:Reinsurance program]]
* [[Definition:Catastrophe reinsurance]]
{{Div col end}}

Definition:Reinsurance layer - Revision history

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