Define: Excess Reinsurance

Excess reinsurance is a type of insurance coverage that provides additional protection to insurance companies by covering losses that exceed a predetermined threshold or limit.

When an insurance company faces a claim that exceeds its own policy limit, excess reinsurance kicks in to cover the remaining amount. It acts as a safety net for insurers, allowing them to transfer a portion of their risk to a reinsurer.

The purpose of excess reinsurance is to protect insurance companies from catastrophic losses that could potentially bankrupt them. It helps spread the risk across multiple parties and ensures that insurers can fulfill their obligations to policyholders.

Primary insurance provides coverage up to a certain limit, while excess reinsurance only comes into play when the primary insurance limit is exceeded. Excess reinsurance is a form of secondary coverage that provides additional protection to insurers.

Insurance companies, particularly those dealing with high-risk or large-scale policies, often purchase excess reinsurance to mitigate their exposure to significant losses. Reinsurers, on the other hand, provide excess reinsurance coverage to insurers.

The premium for excess reinsurance is typically based on the insurer’s loss experience, the policy limit, and the reinsurer’s assessment of the risk involved. It is usually a percentage of the primary insurance premium.

Yes, excess reinsurance can be tailored to meet the specific needs of insurance companies. The terms and conditions, including the coverage limit and deductible, can be negotiated between the insurer and the reinsurer.

Excess reinsurance coverage may have certain limitations, such as exclusions for specific types of losses or geographical regions. It is important for insurers to carefully review the terms and conditions of the excess reinsurance contract to understand the scope of coverage.

If a claim exceeds the excess reinsurance limit, the insurer is responsible for covering the remaining amount. In such cases, the insurer may seek additional reinsurance or rely on its own financial resources to fulfill the claim.

Excess reinsurance contracts typically have a specified term, and they can be canceled or terminated by either party according to the terms outlined in the contract. However, cancellation or termination may require advance notice and could have financial implications for both the insurer and the reinsurer.