Stop-loss (aggregate excess of loss)

Stop-loss is non-proportional reinsurance that protects against deterioration in a whole portfolio's loss experience over a period, rather than against a single loss. The reinsurer responds when the cedant's total incurred losses exceed an agreed threshold, often expressed as a percentage of premiums, for example above a loss ratio of one hundred and ten percent, and up to a limit. It does not target the severity of an event: it protects the year's underwriting result against an adverse accumulation, whether from one large loss or a run of mid-sized ones. It is the fullest protection a cedant can buy, since it caps its overall loss. It is also one of the hardest to price and place, because the reinsurer then shares the fate of the whole portfolio, moral hazard and underwriting drift included. So it is often reserved for volatile lines or for cedants whose discipline the reinsurer knows well. In cyber, it addresses the line's volatility, but it is hard to price without a stable loss history.