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📋 Per-risk excess of loss reinsurance is a non-proportional reinsurance treaty that protects a ceding insurer against large losses on any single insured risk — an individual building, a specific commercial account, or a discrete unit of exposure — rather than against aggregate event-level losses. It is the workhorse treaty for property insurers writing diverse portfolios where a single large claim could disproportionately impact the book's profitability, and it sits alongside per-occurrence excess of loss and aggregate excess of loss as one of the three pillars of excess of loss reinsurance.
⚙️ Under this structure, the ceding company sets a retention — say, $5 million per risk — and the reinsurer covers the portion of any individual risk loss that exceeds that threshold, up to a contractual limit. If a warehouse insured for $20 million suffers a total loss, the cedent retains the first $5 million and recovers up to $15 million from the treaty. Crucially, the definition of a "risk" must be carefully delineated in the contract: in property lines, this typically corresponds to a single location or a group of contiguous structures, but ambiguity can arise when multiple locations share common ownership or when a single fire spreads across policy boundaries. Underwriting guidelines and clash cover provisions address scenarios where one event damages multiple risks simultaneously.
💡 Per-risk excess of loss reinsurance gives primary insurers the confidence to write larger individual accounts than their own capital would otherwise permit. A mid-sized regional carrier, for example, can compete for a $50 million industrial risk by retaining a manageable slice and ceding the rest, effectively leveling the playing field against bigger competitors. Reinsurance brokers often structure these treaties in multiple layers to optimize cost and coverage breadth. The pricing reflects the cedent's historical loss experience, the risk profile of the underlying book, and prevailing market conditions. For carriers focused on commercial and specialty lines, this treaty form is not optional — it is the structural backbone that makes large-line underwriting economically viable.
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