Reinstatement

Take a 10 million excess of 10 layer, priced at 2 million, with one reinstatement at 100% pro rata as to amount. After a loss that uses up 5 million of the layer, the cedant reinstates it for 1 million of reinstatement premium. Reinstatement restores the capacity of a non-proportional reinsurance layer that a loss has eroded or exhausted, for the rest of the cover period, on payment of a reinstatement premium. Without it, a cedant hit by a major loss early in the year would have no protection left for subsequent events. That is dangerous for risks that can recur, such as natural catastrophes or waves of cyberattacks. The treaty specifies the number of reinstatements allowed, sometimes unlimited but most often capped at one or two, and their financial terms: the premium is generally proportional to the share of the layer consumed, sometimes also to the time remaining. For the cedant it is an economic trade-off: it pays to restore protection it had hoped not to use, and reinstatement weighs heavily in years of multiple losses. In cyber reinsurance, where systemic events can recur within a single year, reinstatement terms attract growing attention.