Per risk excess of loss

A per risk excess of loss treaty is a non-proportional contract whose attachment point is assessed on each individual risk hit. If a fire destroys one plant and costs the cedant more than the retention, the reinsurer pays the excess up to the layer limit; if the same event hits three separate plants, each is settled on its own and the retention applies three times over. That is what separates it from per occurrence cover, where losses from one cause are aggregated before meeting the retention. The problem it solves is peak severity on a heterogeneous portfolio: where a surplus treaty cedes a share of premium on every risk, per risk excess of loss costs only the price of large loss protection and leaves the cedant the whole premium on attritional claims. Pricing rests on burning cost for low layers, which are hit often, and on exposure rating for high layers, where experience is too thin to be credible.

A property insurer buys a 4 million xs 1 million per risk layer in 2026. In March a warehouse fire costs it 2.6 million: it keeps 1 million and recovers 1.6 million. In September a windstorm damages eleven insured sites, each costing between 200,000 and 700,000 euros: none breaches the retention, the layer pays nothing, and the insurer absorbs the full 4.9 million. It is exactly that outcome which leads it to add a per occurrence layer at the next renewal.

XL par risque, Per risk XL, Risk XL, Working excess of loss, Excédent de sinistre par risque