Differentiate between ‘Excess of loss’ and ‘Excess of loss ratio’
Excess of loss is a generic term describing reinsurance which, subject to a specified limit, indemnifies the reinsured company against all or a portion of the amount of loss in excess of the reinsured’s specified loss retention. The term is generic in deserving various types of an excess of loss reinsurance, such as per risk (or per policy), per occurrence (property catastrophe or casualty clash), and annual aggregate. The loss retention in excess of loss reinsurance should not be confused with the policy retention in surplus share reinsurance, which always refers to a pro rata form of reinsurance in which, once a session of insurance is made, the reinsured and reinsurer share insurance liability, premium and losses, beginning with the first dollar of loss. It is also known as Non-proportional Reinsurance.
Excess of loss ratio is a type of reinsurance agreement in which losses over a specific amount are covered solely by the reinsurer and clot by the ceding company. Aggregate stop-loss reinsurance caps the aggregate amount of losses that a ceding company is responsible for, called the attachment point, and would only apply when the value of claims occurrences reaches the attachment point. A company wishing to protect itself in the event its net loss ratio for a given year rises above a certain percentage may buy reinsurance which pays in excess of that figure up to a higher agreed percentage, beyond which the company is once more liable. The loss retention in excess of loss reinsurance should not be confused with the policy retention in surplus share reinsurance, which always refers to a pro rata form of reinsurance in which, once a session of insurance is made, the reinsured and reinsurer share insurance liability, premium and losses, beginning with the first dollar of loss.
