Non-proportional reinsurance form where the reinsurer covers the portion of a loss exceeding the retention, up to the coverage limit.
Excess of loss (XL) is the most widely used form of non-proportional reinsurance. The reinsurer only responds when a loss exceeds the cedant's retention, and then covers the difference up to the limit. Unlike proportional reinsurance (quota share, surplus), the sharing is not proportional to premium: the reinsurer receives not a share of premiums but a rate applied to the subject premium base. Main variants: per-risk XL (each and every loss), per-occurrence XL (catastrophe), and aggregate stop-loss. XL structure efficiently protects against severe losses without sharing profits in benign years.
Per-risk treaty '5 XS 5 M EUR': 8 M EUR loss → cedant pays 5 M EUR (retention), reinsurer pays 3 M EUR. 12 M EUR loss → cedant pays 5 M EUR, reinsurer pays 5 M EUR (layer limit), cedant again bears 2 M EUR below the next layer.
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