Coverage tranche defined by a retention and a limit, above which losses are borne by the reinsurer.
A reinsurance layer is defined by two parameters: the retention (attachment point) and the limit. Standard notation: 'X XS Y M EUR' = X million limit above Y million retention. The reinsurer covers losses between Y and Y+X. Below Y, the cedant retains everything; above Y+X, the loss exceeds the layer. Lower layers (working layers) are triggered frequently and carry a high rate on line. Upper layers (cat layers) are rarely triggered but cover extreme losses. The stacked-layer structure allows multiple reinsurers to cover different tranches of the same risk, optimizing reinsurance cost.
Layer '10 XS 5 M EUR': the reinsurer covers losses between 5 M and 15 M. A 12 M EUR loss produces 5 M EUR at retention and 7 M EUR to the layer.
reinsurance layer, layer, tranche de réassurance, couche XL, layer XL