Reinsurance that caps a cedant's overall annual loss experience, responding when the loss ratio exceeds an agreed threshold.
Stop-loss is a form of non-proportional reinsurance that protects not against an individual loss but against the deterioration of a portfolio's overall loss experience across a whole period. The reinsurer responds when the cedant's total claims burden exceeds 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. Rather than targeting the severity of an event, stop-loss therefore protects the annual technical result against an unfavorable accumulation, whether arising from one large loss or from a multiplication of moderate ones. It is the most protective instrument for the cedant, since it bounds its overall loss, but also one of the hardest to price and place, because it exposes the reinsurer to the entire fortune of the portfolio, including moral hazard and any drift in underwriting. For this reason, it is often reserved for volatile lines or for cedants whose discipline the reinsurer knows well. In cyber, its relevance is real given the line's volatility, but its pricing remains delicate for lack of a stable track record.
A small specialist insurer buys stop-loss protection that triggers as soon as its annual loss ratio exceeds one hundred and fifteen percent. A catastrophic year pushing that ratio to one hundred and forty percent sees the reinsurer absorb the excess above the threshold.
stop loss, excédent de perte annuelle, aggregate stop loss, XL en agrégat