Annual aggregate deductible

An annual aggregate deductible (AAD) is the cumulative loss threshold a cedant must reach before an aggregate cover responds. It does for the year what a retention does for a single event. While the sum of qualifying losses stays below it, the reinsurer owes nothing, and payment starts only once the threshold is breached. With a 20 million euro deductible and 18 million of retained losses at September 30, nothing is due; a 5 million loss in November takes the total to 23, and the reinsurer pays the 3 million above the threshold. It is frequently combined with a per loss qualifying deductible, which decides which losses enter the accumulation, and the two are distinct: one filters, the other triggers. Its job is to share out frequency. A cover paying from the first event would carry a premium close to expected losses, with no real risk transfer. Setting the deductible above normal experience leaves the predictable part with the cedant and transfers only the deviation, which is what efficient transfer means. Its level is calibrated on the distribution of annual losses, typically between the median and the eightieth percentile.