Horizontal exhaustion
Repeated consumption of the same low layer by several successive events, until reinstatements run out.
Horizontal exhaustion occurs when the same layer, usually the lowest, is hit several times in the year by separate events until its reinstatements are used up. The program then has no first line left. The cedant keeps every subsequent event net up to the attachment of the layer above, which remains intact and fully paid for. It is a common and little-anticipated failure mode, because programs are almost always sized on their height. It comes from secondary perils, hail, flood, severe convective storm and wildfire, which strike through repeated mid-sized events rather than one extreme. The answers are threefold: buy more reinstatements, lower the bottom layer's attachment, or add an aggregate cover that accumulates events instead of treating them one by one. Only the third really answers frequency; the first two merely move the threshold.
In the United States, NOAA counted nineteen severe convective storms of at least a billion dollars of economic loss in 2023, and insured losses from the peril came close to 60 billion. The only major hurricane to make landfall, Idalia, at Category 3 on August 30 in Florida, cost far less. A regional Midwest insurer whose bottom layer carries a single reinstatement uses it up before summer on two hail episodes. It then keeps the following ones net, while its upper layers, paid for in full, are never touched.
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