Excess of loss reinsurance
Excess of loss reinsurance is a non-proportional arrangement in which the reinsurer pays losses only above a set retention, known as the attachment point, up to an agreed limit.
Under excess of loss cover, the ceding insurer retains all losses up to a chosen amount, called the retention or attachment point, and the reinsurer responds only to the portion of a loss that exceeds that amount, up to the cover's limit. Because payment depends on the size of the loss rather than a fixed percentage of every claim, it is called non-proportional reinsurance.
Excess of loss protects insurers against large individual losses or against the accumulation of many claims from a single event, such as a hurricane or wildfire. It is often arranged in layers, with different reinsurers covering successive bands of loss, and it helps carriers cap their worst-case exposure and protect capital. Common forms include per-risk cover and per-occurrence, or catastrophe, cover.
For example, a treaty might cover 9 million dollars of loss in excess of a 1 million dollar retention, so the insurer pays the first 1 million of any covered loss and the reinsurer pays the next 9 million. RiskCube Re can build excess of loss layers that cap severity for MGAs and carriers writing emerging and complex risks.
Definitions are educational and general, and specific contracts, endorsements, and state rules may modify them. For regulatory guidance, refer to the NAIC or the Insurance Information Institute.