Excess Reinsurance

Definition - What does Excess Reinsurance mean?

Excess reinsurance is a type of reinsurance wherein the reinsurer covers the ceding company for any losses that may exceed the specified limit. The loss covered comes from a single occurrence that exceeds the first loss. The amount of the insurance covered should be above the stated sum with the principle of contribution applying payment losses. Also called non-proportional reinsurance, it is calculated independently from the premium charged to the insured. This type of insurance is applicable to either aggregate losses or all loss events 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 limit that is determined in advance. In most cases, the reinsurer pays the amount of the claim over the limit and up to a specified sum. The reinsurance company is responsible for the number of losses incurred by the insurer above a particular limit. Take for example, a reinsurance contract with an excess of loss provision means that the reinsurer is responsible for incurring losses over $250,000 so if the aggregate loss amount is equivalent to $300,000, the reinsurer will be responsible for paying the $50,000 excess. The benefit of covering itself against excessive loss is that it provides more security and stability in cases of a major and unusual event.

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