Attachment point

The attachment point, also called the priority, is the loss threshold at which a non-proportional reinsurance layer starts to pay. Below it, losses stay with the cedant as its retention. Above it, up to the layer's upper limit, they pass to the reinsurer, written as limit XS attachment, so 5M XS 5M for a layer paying from 5 to 10 million. It is one of the two parameters that define a layer, along with its limit. In primary insurance the term means the same threshold for an excess policy, which attaches above the limits of the underlying policies. It is often confused with the retention. The two match on the first layer, but a higher layer attaches on top of other covers. Setting it is the central trade-off in structuring a program. A low attachment point transfers more risk and costs more in premium, a high one cuts the cost but leaves the cedant more exposed. The choice depends on the cedant's risk appetite, its capital and the line's volatility. The higher a layer attaches, the lower its rate on line, and the further its pricing moves from burning cost toward modeling. In cyber, setting it is delicate, because the severity of accumulation events is uncertain and a loss can drift well past the level anticipated when the program was structured.