Definition:Per-occurrence excess of loss
🛡️ Per-occurrence excess of loss is a form of reinsurance in which the reinsurer indemnifies the ceding company for the portion of loss from a single occurrence that exceeds a predetermined retention (also called the attachment point), up to a specified limit. It is the most common non-proportional reinsurance structure for protecting insurers against large individual events — whether a major property catastrophe, a mass-casualty accident, or a significant liability verdict. The arrangement isolates severity risk: the cedent keeps routine, predictable losses and transfers the tail to the reinsurer.
⚙️ A typical placement might attach at $5 million and provide $20 million of limit, meaning the cedent absorbs the first $5 million of any one occurrence and the reinsurer pays the next $20 million. If the occurrence generates $30 million in losses, the cedent retains $5 million plus the $5 million that exceeds the reinsurance ceiling. Layers are often stacked — a primary excess-of-loss layer, a first surplus layer, and so on — with different reinsurers or syndicates participating at each level. The price, expressed as a reinsurance premium or rate on line, reflects the modeled probability that losses will penetrate the attachment point, informed by catastrophe models, historical loss experience, and exposure data.
📈 This structure is indispensable for carrier capital management. Without per-occurrence excess-of-loss protection, a single devastating event could consume an insurer's surplus and threaten its solvency. Rating agencies and regulators scrutinize the adequacy of these programs when assessing a carrier's financial strength, and the terms negotiated during renewal season — attachment points, limits, and pricing — serve as a barometer for the broader reinsurance market's view of risk. As loss severity trends upward across lines like commercial auto and umbrella, per-occurrence excess of loss remains central to how primary insurers architect their risk transfer.
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