Risk Excess Treaty Reinsurance

Unlike quota share arrangements a risk excess reinsurer only pays when the loss exceeds a pre-agreed amount which is retained by the captive. As the payment of losses is not split equally reinsurers charge a percentage rate of the total premium which can increase or decrease as negotiated at each renewal. Again by reducing the amount to which the captive is exposed from any one loss to a level commensurate with the captive's capital base, the captive does not face financial ruin in the event of a large individual loss.

Risk Excess Reinsurance is normally preferred by captives with established portfolios which are better able to predict overall loss ratios but who need to reduce the impact of any one loss above a certain level. Individual risks which are either too large or which fall outside the treaty parameters can be reinsured on a facultative excess of loss basis following the same approach as a risk excess of loss treaty.

Risk Excess reinsurance can usually be secured on a risks attaching basis which protects all risks underwritten by the captive during the underwriting year until expiry or renewal, or on a losses occurring basis which protects losses happening during the underwriter year, regardless of when the original policies incepted.