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🏗️ '''Reinsurance tower''' is a layered structure of [[Definition:Reinsurance | reinsurance]] coverage in which multiple [[Definition:Reinsurer | reinsurers]] participate at different attachment points above a [[Definition:Retention | retention]] level, stacking on top of one another like floors of a building. Each layer absorbs losses within a defined band — once losses exhaust one layer, the next layer above begins to respond. This architecture allows a [[Definition:Ceding company | ceding company]] to distribute catastrophic or large-loss exposure across several reinsurers rather than relying on a single counterparty, and it is a foundational tool in structuring [[Definition:Excess of loss reinsurance | excess-of-loss]] programs for property catastrophe, casualty, and specialty lines.

⚙️ A typical tower begins with the cedent's net retention — the amount the primary [[Definition:Insurance carrier | insurer]] keeps for its own account. Immediately above sits the first [[Definition:Reinsurance layer | layer]] (sometimes called the working layer), which tends to see the most frequent claims activity and therefore commands a higher [[Definition:Rate on line (ROL) | rate on line]]. Successive layers attach at progressively higher loss amounts, each with its own set of reinsurers, [[Definition:Reinsurance premium | premiums]], and [[Definition:Reinstatement provision | reinstatement provisions]]. [[Definition:Reinsurance broker | Reinsurance brokers]] typically negotiate each layer separately, sometimes placing them with different panels of reinsurers — or tapping [[Definition:Catastrophe bond | catastrophe bonds]] and other [[Definition:Insurance-linked securities (ILS) | insurance-linked securities]] for the uppermost tranches where traditional capacity may be scarce or expensive.

📊 The design of a reinsurance tower directly shapes an insurer's [[Definition:Risk appetite | risk appetite]], [[Definition:Capital adequacy | capital adequacy]], and earnings volatility. A well-constructed tower ensures that even a severe loss scenario — such as a major hurricane or a mass-tort event — is absorbed in a predictable, pre-negotiated fashion across multiple counterparties. Rating agencies and regulators scrutinize tower structures when evaluating an insurer's financial strength, paying close attention to potential gaps between layers, the credit quality of participating reinsurers, and whether adequate [[Definition:Aggregate limit | aggregate limits]] are in place. In soft [[Definition:Reinsurance market | reinsurance markets]], cedents may secure broader coverage and lower attachment points; in hard markets, towers often shrink and retentions rise, cascading pressure back into primary [[Definition:Underwriting | underwriting]] and [[Definition:Pricing | pricing]] decisions.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Reinsurance layer]]
* [[Definition:Rate on line (ROL)]]
* [[Definition:Catastrophe bond]]
* [[Definition:Retention]]
* [[Definition:Ceding company]]
{{Div col end}}

Definition:Reinsurance tower - Revision history

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