Excess Reinsurance

What Does Excess Reinsurance Mean?

Excess reinsurance is a type of reinsurance in which the reinsurer covers the ceding company for any losses that exceed a specified limit. The losses covered stem from a single occurrence that surpasses the initial loss threshold. The amount covered by the reinsurance must exceed the stated sum, with the principle of contribution applying to payment losses. Also known as non-proportional reinsurance, it is calculated independently of the premium charged to the insured. This type of reinsurance can apply to either aggregate losses or all loss events occurring during the policy period.

Insuranceopedia Explains Excess Reinsurance

This type of reinsurance involves the insurer paying the amount of each claim for each risk only up to a predetermined limit. In most cases, the reinsurer covers the amount of the claim that exceeds this limit, up to a specified sum. The reinsurance company is responsible for the losses incurred by the insurer that exceed a particular threshold.

For example, in a reinsurance contract with an excess of loss provision, the reinsurer is responsible for covering losses above $250,000. If the aggregate loss amount is $300,000, the reinsurer will pay the $50,000 in excess. The advantage of this coverage against excessive loss is that it provides greater security and stability in the event of a major or unusual occurrence.