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🛑 '''Stop loss insurance''' is a form of [[Definition:Reinsurance | reinsurance]] or insurance protection that caps the total amount of losses an insured party — typically an [[Definition:Insurance carrier | insurer]], [[Definition:Self-insured retention | self-insured employer]], or [[Definition:Captive insurance company | captive]] — must bear over a defined period, usually a policy year. Once aggregate losses exceed a predetermined threshold (expressed as a dollar amount, a [[Definition:Loss ratio | loss ratio]], or a percentage of [[Definition:Earned premium | earned premium]]), the stop loss policy responds by reimbursing losses above that attachment point, up to an agreed ceiling. The mechanism provides balance-sheet protection against abnormally adverse loss experience rather than covering individual large claims, distinguishing it from per-occurrence [[Definition:Excess of loss reinsurance | excess of loss]] coverage.

⚙️ In the reinsurance context, a [[Definition:Cedent | ceding insurer]] might purchase an [[Definition:Aggregate excess of loss reinsurance | aggregate stop loss]] treaty that attaches at, say, a 75% loss ratio and pays up to a 100% loss ratio, protecting the cedent's annual underwriting result from deterioration beyond an acceptable level. The reinsurer prices this coverage by analyzing the cedent's historical loss distributions, the volatility of the underlying book, and the correlation among the risks within it. In the [[Definition:Employee benefits | employee benefits]] space — particularly in the United States — stop loss insurance is widely used by self-funded employers: [[Definition:Specific stop loss | specific stop loss]] covers individual claimants whose costs exceed a per-person deductible, while [[Definition:Aggregate stop loss | aggregate stop loss]] caps total plan expenditures. Variations on the structure appear across markets globally, including in [[Definition:Captive insurance company | captive]] programs and large-deductible [[Definition:Workers' compensation insurance | workers' compensation]] arrangements.

💡 The value of stop loss protection lies in its ability to smooth earnings volatility and protect capital adequacy without requiring the insured to transfer its entire risk portfolio. For primary insurers, it preserves [[Definition:Solvency | solvency]] margins during years of heavy [[Definition:Catastrophe loss | catastrophe]] or [[Definition:Attritional loss | attritional loss]] activity. For self-insured employers, it makes the decision to move away from fully insured group health plans financially viable by placing a ceiling on worst-case exposure. Pricing stop loss coverage demands sophisticated [[Definition:Actuarial analysis | actuarial analysis]], because the product responds to the tail of the aggregate loss distribution — precisely where data is thinnest and uncertainty is highest. Mispricing can lead to adverse results for the stop loss carrier, which is why this segment tends to attract specialized [[Definition:Underwriter | underwriters]] with deep expertise in portfolio-level risk assessment.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Aggregate excess of loss reinsurance]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Self-insured retention]]
* [[Definition:Loss ratio]]
* [[Definition:Captive insurance company]]
* [[Definition:Specific stop loss]]
{{Div col end}}

Definition:Stop loss insurance - Revision history

PlumBot: Bot: Creating new article from JSON