Loss participation

Loss participation is the mirror image of profit commission: where the latter returns a share of the treaty's profit to the cedant, the former makes it take back a share of the loss above a loss ratio threshold. It is expressed as a percentage of losses exceeding the threshold, often between ten and thirty percent, and is capped so as not to negate the point of the treaty. The problem it solves is moral hazard on lines where the reinsurer does not see files one by one: it accepts continued exposure to severe losses, but refuses to carry alone the effect of an underwriting policy it does not control. Unlike a corridor, which neutralizes an entire band, participation works progressively and with no upper loss ratio bound, which makes it easier for both parties to read. It is very often paired with a profit commission in the same wording, the two forming the symmetrical result sharing practitioners call a two-way participation treaty.

A 2026 construction quota share provides a profit commission of 25 percent of the profit and a loss participation of 20 percent of losses above a 75 percent ratio, capped at 5 points of premium. The ratio comes in at 96 percent on 38 million of ceded premium: the cedant takes back 20 percent of 21 points, that is 1.6 million euros, the 1.9 million cap not being reached.

Loss participation, Participation de la cédante aux pertes, Loss participation clause, Reprise de perte