Non-proportional reinsurance treaty that protects a cedant against the accumulation of losses from a single catastrophic event beyond a given retention.
Catastrophe reinsurance, known as Cat XL (Catastrophe Excess of Loss), is a non-proportional reinsurance treaty designed to protect the cedant against the accumulation of losses from a single catastrophic event: earthquake, hurricane, flood, windstorm. The mechanism is straightforward: the cedant bears aggregate losses on the event up to its retention (or priority), and the reinsurer covers the excess layer up to the treaty limit. A Cat XL program is structured in several stacked layers. The lower layer, or working layer, is frequently triggered and priced accordingly. Upper layers protect against rare, severe events. The event definition is governed by a hours clause: a time window (72 or 168 hours depending on the peril) within which all losses are aggregated into a single event for treaty-triggering purposes. Cat XL is the backbone of solvency for property insurers exposed to natural catastrophes. Under Solvency II, the catastrophe module of the SCR is calculated gross, then net of the reinsurance program, creating a direct incentive to buy Cat XL. The Cat XL market experienced significant hardening after the heavy years 2017-2022, with rates rising 30 to 60% at the 2022-2023 renewals, sparking debate on the adequacy between pricing and models.
A French property insurer buys a windstorm Cat XL program structured in three layers: 50 million euros excess 50 million (working layer), 150 million excess 100 million and 250 million excess 250 million. During the 2009 Klaus windstorm, its aggregate losses reach 180 million: the first 50 million are for its own account, the working layer is fully exhausted (50 million), and 80 million of the second layer is consumed.
cat XL, catastrophe XL, cat excess of loss, excédent de pertes catastrophe, programme catastrophe