A top layer that, if untouched by a first event, drops down to serve as a second line of cover.
Top and drop is a variant of cascading in which a layer placed at the top of the program serves two successive functions. On the first event it plays its normal role as extreme protection, above everything else. If that event does not reach it, it drops down for the second event and sits at a low attachment, often that of the now-exhausted first layer. The cedant thus buys one block of capacity for two uses that cannot both arise at once. The problem it solves is reinsurance budget efficiency: top capacity is the cheapest on a rate on line basis, since it is rarely reached, but it is also the most likely to go unused. Letting it drop into second position turns dormant capacity into frequency protection at a cost far below an extra reinstatement on the bottom layer. The trade-off is that a very large first event consumes the layer at the top and leaves it unavailable below.
A European cedant buys a 60 million xs 240 layer in 2026 at 1.1 percent rate on line, or 660,000 euros, carrying a top and drop clause at a 15 million attachment. A February windstorm costs 95 million and does not reach the top layer. A second storm in November costs 48 million: the layer drops down and pays 33 million above 15. An equivalent reinstatement on the bottom layer had been quoted at 2.9 million at renewal.
Top and drop, Couverture top and drop, Tranche sommitale descendante